The return of Donald Trump to the White House as the 47th President of the United States has reignited economic tensions between the United States and China. The origins of this conflict trace back to early 2018 when Trump imposed trade barriers on China, citing unfair commercial practices and intellectual property theft. The trade war escalated until both countries signed the US-China Phase One trade deal in January 2020. This agreement aimed to restore stability and trust by requiring structural reforms and changes to China's economic and trade regime.
In addition to the renewed tensions with China, President Trump has also turned his attention towards BRICS nations. He has threatened to impose 100% tariffs on these countries if they attempt to replace the US Dollar with a new currency in international trade. Trump has been vocal about maintaining the dominance of the US Dollar, stating:
"We are going to require a commitment from these seemingly hostile countries that they will neither create a new BRICS currency, nor back any other currency to replace the mighty US Dollar or, they will face 100% tariff," and continued “there is no chance that BRICS will replace the US Dollar in international trade, or anywhere else, and any country that tries should say hello to tariffs, and goodbye to America!”
Furthermore, Trump has announced a 25% tariff on Mexico and Canada, effective from Saturday. This move marks a significant shift in trade relations with neighboring countries and reflects his broader strategy to prioritize American economic interests.
The economic data calendar is providing support for the US Dollar, leading to an increase in its value. Currently, the US Dollar Index (DXY) trades at 108.25, having reached a fresh weekly high at 108.37. These gains come as traders digest the latest tariff threats from President Trump and anticipate the upcoming US Personal Consumption Expenditures (PCE) data.
The financial markets are bracing for a shaky weekend as they remain closed until Monday morning in Asia. The US 10-year yield is trading around 4.524%, having bounced higher after reaching a fresh January low at 4.484% earlier this week. Meanwhile, the CME FedWatch tool indicates an 82.0% chance of no change in the Federal Reserve's policy rate at its next meeting on March 19.
Traders are adjusting their positions in response to Trump's tariff announcements and are closely monitoring economic indicators. The expectation is for an uptick in market readings from 36.9 in the prior reading to 40, although still indicating contraction.