Trade Wars Make China a Deflation Exporter

Market volatility has been declining in recent days, with the sentiment balancing between concerns over the global economic slowdown and hopes that China and the US are taking sufficient steps towards sustaining domestic demand.
Alexander Kuptsikevich

China announced steps to maintain domestic consumption, including the possible removal of restrictions on the car purchase. Just as the U.S. has taken steps to ease tax breaks on wages, China’s moves have failed to solve the main problem – trade conflicts.

On the contrary, stimulus in the U.S. and China set the tone whereby policymakers are increasingly inclined to an eternal trade war idea. They appear unwilling to step back on important issues such as technology and intellectual property rights.

Without a breakthrough in negotiations, the current trends in financial markets may well continue to develop in the foreseeable future. In particular, the Chinese yuan is likely to remain under pressure, potentially declining to 7.22 per dollar by the end of the year.

Due to the weakening of the yuan, China could be the main exporter of deflation in the world, except the US, which introduced tariffs to support price increases.

The simmering trade conflicts risk feeding further growth of the dollar against the euro and most other major currencies. This is because the Fed will have less room for policy easing, while lower interest rates could prove to be a major driver of currency weakness.

Without a resolution of the trade dispute, the dollar risks continuing to climb towards 14-year highs around 104.00 for USDX, reached at the end of 2016. The decline of EURUSD may not only develop, but also become stronger in response to active policy easing, which ECB representatives have already promised in September.

If the ECB cuts rates next month and launches a new round of QE as expected, EURUSD could decline to 1.05 at the end of the year and risk continuing to decrease further in the first quarter of 2020. It is unlikely that the ECB and politicians in the region will be worried about the euro declining below parity with the dollar, if it will help the economy and at the same time avoid an excessive increase in debt.

This article was written by FxPro

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US