Why Trade Wars End is Good News for the Dollar

Alexander Kuptsikevich
American flag and banknotes (USD) currency on Stock market

Markets cheer trade news talks

Global markets demand for risky assets persists due to hopes for trade negotiations progress and confirmation of the Fed’s soft position. Sources close to the negotiations report that the United States and China are getting closer on key issues, that feeds hope of ending the trade wars launched last year.

Fed’s patience…

Potentially, this is a good news for the markets, but one should not forget that long disputes have seriously harmed economic growth and caused markets shake-up. More importantly, trade conflicts indirectly influenced the central banks’ policies, forcing them to soften rhetoric.

One of the most striking signs was the manifestation of the Fed’s “patience”. The published January meeting minutes showed that the FOMC is considering halting the reduction of balance and is ready to take a prolonged pause in the rate increase.

…may come to an end

However, trade negotiations success can boost economic growth, inflation, and, as a result, force the Fed to return to tougher rhetoric.

Thus, although at the moment both of those pieces of news are favorable for stock markets, in the future the Fed may return to a more rigid position, trying to avoid overheating.

For this reason, trade negotiations progress is rather good news for the dollar in the first place. At a minimum, this is not bad news.

This article was written by FxPro

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