US business tactics have increased USD volatility


The rate development of the US dollar against other world currencies has been very volatile, especially after the Wednesday, 7 June 2019 assembly in Florida, following US President Donald Trump’s statement on US-China trade talks. Mr. Trump said China “broke the deal” in the ongoing trade negotiations between Beijing and Washington. During the weekend of May 4th and 5th, 2019, President Trump was already threatening a significant increase in tariffs on imported Chinese goods, and part of this increase in tariffs should be announced tomorrow, 10 May, 2019.

Thus, during Thursday’s European trading morning, the US dollar (USD) traded on the Forex market in an alternating trend of growth, decline and subsequent growth in the exchange value compared to the DXY dollar index. The US Dollar Currency Index (DXY) compares the USD exchange rate to the other six major world currencies. The DXY index, on Thursday’s morning at 10:58 CET, was trading at US$97.63 points with the current daily increase of + 0.01% of the point value. The DXY index showed a daily increase of + 0.05% points during the European trading morning, at 7:30 CET, and about two hours later, the value of the DXY index fell by – 0.09% points and subsequently showed some strengthening.

The removal of US tariffs on imported Chinese goods in stages could be a good strategy to make China keep its promises made during trade negotiations, but it will be more difficult for individual companies to function properly, a former US trade negotiator said on Thursday, 9 May, 2019. “There is a difference between what could be attractive as a business negotiation strategy and what could be commercially attractive,” said Stephen Olson, researcher at the Hinrich Foundation Pro-Business Group. While the removal of tariffs in stages maybe effective for the US to maintain its influence on trade negotiations, such a step “makes it very difficult to plan and prolongs uncertainty for businesses”, added Mr. Olson. As part of a final trade agreement, US officials want to keep at least some of the tariffs as a way to make Beijing meet its commitments. China wants tariffs to be completely eliminated.

China threatened that if the US increases tariffs for importing Chinese goods to the US with a total planned volume of approximately US$200 billion, it will reciprocally respond by increasing US tariffs by fifteen percent making it 25% of import duty. The ongoing negotiations are based on a number of controversial areas where China is expected to commit to change laws in order to resolve US main complaints. These include theft of US intellectual property and trade secrets, forced technology transfers, competition policy, access to financial services and currency manipulation.

All these facts caused an increased USD exchange rate volatility vis-à-vis other world currencies on Forex market.  On 9 May, 2019 at 11:48 CET the EUR/USD global currency pair traded at a mutual exchange rate of US$1.1194 per EUR, with a daily EUR appreciation of + 0.03% against the USD, but a few minutes earlier at 11:43 CET, EUR was weakening by – 0.02% of the exchange rate against the USD. On the stated day and time the British pound (GBP) also recorded a drop with both the USD and EUR, while the GBP/USD currency pair traded at US$1.2995 per GBP with the current GBP depreciation of -0.08% against the USD.

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