Could Trade Tension Support the US Dollar Again?

Major trade war beneficiary

The US dollar (UUP) made a comeback on September 14 after reports suggested that Donald Trump is planning to impose tariffs on Chinese goods worth $200 billion, despite trade talks. The US dollar has benefited significantly from safe-haven bids due to escalating trade tension, especially between the United States and China (FXI).

Could Trade Tension Support the US Dollar Again?

Equities and escalation trade tension

US equities (SPY) (DIA) closed generally flat on September 14 after news of escalating tension erased earlier gains. Today, global stocks weakened in anticipation of a new round of tariffs, which escalate trade conflict significantly. US stock futures also fell.

As the market waits for Trump to announce the next round of tariffs on China, the US dollar could again be supported. According to The Wall Street Journal, the tariffs could be set at 10%, below the 25% the administration was originally considering. In today’s trading, the US Dollar Index (USDU) has remained above its Friday closing level. However, the US dollar’s long-term outlook depends on how the current trade dispute unfolds. The conflict could start hurting US businesses and economic activity as well, which could impact the US dollar.

Impact on gold

The US dollar’s strength has impacted gold prices significantly this year. Because gold (GLD) is dollar-denominated, strength in the dollar makes gold more expensive in other currencies, subduing its demand. Gold fell 0.46% on September 14 after the dollar bounced back.