The USD Faces Economic And Geopolitical Pressures

The USD is just about always a hot topic in the forex space, and for good reason. It’s the currency that represents the largest economic region in the world, the United States. However, the currency is hitting the mainstream news more these days than we’ve seen in the recent past. While the USD found strength early on in the year thanks to strong economic data, slowing economic growth in the United States, coupled with geopolitical concerns surrounding a trade war, are leading to weakness. Today, we’ll talk about the pressures faced by the USD and what you should be watching for ahead.
Slowing Economic Growth
One of the stories surrounding the USD at the moment has to do with the United States GDP. Previously, it was reported that in the fourth quarter the United States economy grew at a rate of 2.6%. However, these figures were recently revised. According to updated reports from the Commerce Department, growth in the fourth quarter was revised down to 2.5%. While a 0.1% revision doesn’t sound like a big change, in the world of GDP growth, that’s not very good news. Nonetheless, the 2.5% rate of growth was directly in line with what economists were expecting to see.
Ultimately, the revision was the result of business inventories subtracting more from growth than previously expected. Nonetheless, there was a silver lining on the otherwise negative revision. Consumer spending, the largest contributing factor to GDP growth in the United States, remained strong. In fact, the figure remained unrevised with growth in the amount of 3.8%. Nonetheless, a currency is ultimately only as strong as the economy it represents. So, with an overall downward revision in United States GDP, pressure is being placed on the USD.
A Potential Trade War In The Works
While the GDP story is an important one, the larger story that has forex traders chatting and looking for USD currency pairs to trade is the idea that a trade war is in the works. Recently, President Donald Trump made one of the biggest moves that he’s made in his presidency. In an attempt to protect the United States steel and aluminum industries, President Trump announced that his administration would be placing tariffs on imports of steel and aluminum into the United States. These tariffs will be charged at a rate of 25% for steel and 10% for aluminum.
While this news may be great news for steel and aluminum companies in the United States, the global economic implications of the tariffs could reach far and wide. As one could imagine, leaders from around the world are speaking out. In a recent statement, Li Xinchuang, Vice secretary general of the China Iron and Steel Association, had the following to offer:
“What an extremely stupid move… A desperate attempt by Trump to pander his voters, which I think in fact runs counter to his ‘America First’ pledge.”
We also heard an enlightening statement from Stavros Lambouris, CEO, HYCM Europe. Here’s what he had to say:
“Steel and aluminum are an important factor in various economies around the globe, and the United States just so happens to be one of the largest consumers of both of these materials. These tariffs have the potential to cause global economic unrest, and could lead to tremendous volatility in financial markets.”
The above statement has been matched from others, like European Commission President, Jean-Claude Juncker. Here’s what he had to offer:
“We will put tariffs on Harley-Davidson, on bourbon and on blue jeans – Levi’s… We cannot simply put our head in the sand.”
Of course, Canada, the country that is likely going to be hurt most by the tariffs, responded in outrage. In recent statements, Canadian Finance Minister, Bill Morneau, had the following to offer:
“Canada is an integral part of the supply chain on steel and aluminum in North America. We clearly have said that this is important to maintain the ability for us to trade back and forth… And obviously we’re going to be firm. We’re going to say that this is not an acceptable possibility for us to put tariffs on an important commodity like steel and aluminum.
I spoke to Treasury Secretary Mnuchin this week to give him our point of view… He clearly understood. So we’re going to keep working to make sure that all of the people that are involved in this decision get to what we hope will be the right answer.”
With the idea of a trade war in the near future, and the United States being in the center of the geopolitical drama, concerns are mounting with regard to the future stability of the United States economy, leading to further pressure on the USD.
What To Watch For Ahead
Moving forward, the USD is likely to continue to see pressure as the conversation surrounding global trade heats up. Nonetheless, the market has a history of surprising investors. So, keep a close eye on the story surrounding tariffs and trade wars as well as any updated economic information out of the United States for clues as to where the USD is headed moving forward.