Forex is the next trade war frontier

Forex is the next trade war frontier

Forex 4 minutes to read
Steen Jakobsen

Chief Investment Officer

Summary:  President Trump's insatiable appetite for new 'enemies' (China, EU, news media, immigrants) has found a new trade war target – foreign exchange. The upshot will be a weaker dollar and US bond yields heading towards zero.


Action:                 

Short Dollar Index (DXU9 Saxo Trader) @94.41 with stop/loss @ 97.80 on daily close above.

Why:                   

 Aggressive Fed easing, weaponising of foreign exchange by President Trump and technical break.

Background:       

The focus from Trump on the European Central Bank, the concept that Federal Reserve could cut rates, forcing the US 10-year benchmark bond yield to 100 basis points, if not zero long-term, is in play. For now, the Fed will be cutting (wrongly) on inflation by Q4  and they will go into panic on growth – throughout this, an engineered weaker US dollar is the go-to play by Fed and the US administration.

I have for better or worse been doing this job for 30 years – NEVER EVER have I seen a foreign leader, nor an American President comment on another region's central bank's action until this week:

Source: Reuters

And as The Daily Shot tweeted this morning:  Chart: Currency Wars

Source: The Daily Shot
I have been a dollar bull for the longest time as I firmly believe that liquidity is tight in US dollar funding, in particular for non-US entities. However, it's also clear to me that in this trade war, with the lack of the globalisation effect, a lower US dollar is required.

A lower dollar will help US exports, emerging markets, economic growth and overall liquidity. But most importantly, the comments from Trump indicate he and his administration will pursue a lower-dollar policy, either directly through verbal intervention or by forcing the Fed to cut all the way to 100 bps or even 'zero bound'.

Recent weeks have told us that the Fed academically is ready to embrace ‘zero bound’ and with the US election cycle starting in earnest this week with Trump's ‘gift’ to the stock market (promising to meet President Xi) – the US dollar may be about to be ‘weaponised’.

I'm presently in China – I got lot of new information about China which will be forthcoming in a wider analysis next week.

Quarterly Outlook

01 /

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.