A currency war officially started

From the very beginning of his presidency, Trump complained about the strength of the dollar and that the main US trading partners are "robbing" Americans, gaining competitive advantages through artificially weakening their currencies. These accusations were made against Japan, and against Germany, and especially against China.

Since the beginning of the tariff war with China, Trump has been relentlessly increasing criticism of the Fed, scaring the market with a currency war. By the way, while there is a tariff war with China, the US trade deficit with China is growing.

China's response is effectively reducing US imports to China, but Trump's tariffs, as practice shows, can't effectively block Chinese imports to the United States. Chinese goods remain competitive in any event. Moreover, Chinese manufacturers bypass tariff barriers through third countries.

This situation gave rise to the expectation of an aggressive Fed rate cut to weaken the dollar. When the Fed lowered the rate but didn't confirm the beginning of the reduction cycle - even the expectation of a forced devaluation of the dollar through foreign exchange intervention.

All attention was focused on the United States and the dollar, while the market doesn't take into account that the Central Bank of China is much smaller than the Fed, is connected with formalities. In this way, China also can start a currency war off.

After Trump announced other duties against China to "push" the Chinese into a bargain on American terms, in response to this, China, which no longer can respond symmetrically with tariffs on tariffs, released the yuan finally doing above the critical level of 7.00. Trump, in response, declared China a "currency manipulator," which implies the further introduction of additional anti-dumping duties. At the same time, Trump himself denied the possibility of a forced devaluation of the dollar. It can be stated that the currency war has officially begun.

It provoked fussiness in all markets: the yen strengthened massively; the Swiss franc still shows protective functions, gold rushed to new heights. The euro also received support, although it shows the properties of a protective currency to a lesser extent than the yen and the franc. Italian political problems began putting pressure on the euro again. The Australian dollar fell: China is the primary consumer of Australian commodity exports. The commodity market is under pressure: oil, contrary to all the rhetorical interventions of the Arabs, has gone to a new low, the spread between Brent and WTI has dropped to almost $ 3, and this puts pressure on all commodity currencies.

EUR / GBP continues growing on fears of the "hard" Brexit and has almost reached goals in the area of 0.93. Here it is time to prepare for partial profit-taking.

In addition to the theme of the currency war, two more local crises emerged: the political turmoil in Hong Kong, where citizens are protesting against a reduction in the political rights of autonomy. It instigates a reduction in regional stock indices. Moreover, the left's victory in the primaries in Argentina, after which the local currency collapsed by more than 30%. All this does not add risk appetite, especially when it comes to emerging markets.

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