USD and JPY Hold Strong as Trump Threatens to Cut Ties with China

The President of the United States Donald Trump once again renewed his threat to cut ties with China, following his top trade negotiators holding talks with Beijing, who noted that severing the trade relationship was not a viable option.

US Trade Ambassador Lighthizer was speaking to a House of Representatives committee on Wednesday and said:

Do I think that you can sit down and decouple the United States economy from the Chinese economy? No, I think that was a policy option years ago. I don’t think it’s a reasonable policy option at this point.”

In response to these comments late on Thursday Trump tweeted:

It was not Ambassador Lighthizer’s fault (yesterday in Committee) in that perhaps I didn’t make myself clear, but the U.S. certainly does maintain a policy option, under various conditions, of a complete decoupling from China.

Relations between the U.S. and China have reached their lowest point in years, really picking up pace since the coronavirus pandemic that began in China hit the United States economy hard, leading to Trump and his administration repeatedly accusing Beijing of not being transparent about the outbreak.

What does this mean for the market?

It is added uncertainty, the fact that Trump if he feels like it, could just cut ties with China if obligations are not being met. Now, this is not in his interest ahead of the elections, but perhaps it could be some sort of tactic, who knows. Either way, markets will not like it and its added cases to continue to see flights into the safe-haven FX, and rallies/pullbacks in riskier FX being capped. For more on how to implement such fundamentals and trade ideas, please check out our membership/



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