Via Bloomberg
The dollar bounced back yesterday as dovish Bullard indicated that a 50bps rate cut in July would be overdone. However, the Dollar Index still sits beneath it's 200 EMA and is setting up technically for lower prices.
Furthermore, the Fed has still moved to a cutting bias from a wait and see position, which will keep the USD pressured for now. Looking forward the rest of the world's central banks look like they will follow the Fed and the RBNZ suggested at their last rate meeting that lower rates would be appropriate for them. They are shifting from their 'one and done' rhetoric by opening the door for further cuts.
When ECB's Mario Draghi indicated that lower rates may be coming, pushing the Euro lower, President Trump was irked and used twitter to show his annoyance. The US Treasury Secretary Mnuchin accused China of devaluing the Yuan to offset tariff impacts during the G-20 meeting of central bankers and finance ministers. The US has put into place anti subsidy duties on products from countries that undervalue their currencies. The economies targeted are those with large trade surpluses like Europe, Japan, China and Korea.
So, if President Trump becomes focused on a 'devaluation' game then there could be a currency war triggering a race to the bottom. The G20 may well be the place where it begins. This is a currency war that the US is well placed to win as the ECB and the BOJ already have sub zero rates, while the US has the benefit of a hiking cycle to unwind. The Trump and XI meeting could undo this, but a slow and drawn out trade war of attrition seems to be the status quo for now.
