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On April 26, according to the Wall Street Journal, in order to simplify the negotiations on reciprocal tariffs, US negotiating officials plan to use a new framework developed by the Office of the United States Trade Representative (USTR), which lists major categories of negotiations, such as tariffs and quotas, non-tariff trade barriers, digital trade, product origin principles, economic security and other commercial issues. In these categories, US officials will put forward specific requirements for individual countries, but people familiar with the matter emphasized that this document may also be adjusted at any time. People familiar with the matter said that the United States initial plan is to negotiate with 18 major trading partners in turn over the next two months. The initial plan is to alternately participate in the talks with six countries per week for three weeks (six countries in the first week, another six countries in the second week, and another six countries in the third week) until the deadline of July 8. If US President Trump does not extend the 90-day suspension period he set by then, those countries that cannot reach an agreement will begin to face reciprocal tariffs.On April 26, after the United States announced additional tariffs on goods from many countries, Peruvian business people expressed concerns that the US governments extreme measures would disrupt the global trade order and may even trigger a global economic recession. Alvaro Barrenechea Chavez, vice president of the Peruvian-Chinese Chamber of Commerce, said that the negative impact of the US tariff policy has begun to emerge and hoped that the US government would rethink. Recognizing the importance of countries working together to promote development, I think this is the best way to become a true "world citizen."Market news: Musks xAI company plans to raise about US$20 billion in a financing round.Conflict situation: 1. Ukrainian top commander: Russia tried to use air strikes as a cover to increase ground attacks, but was repelled by Ukraine. 2. Ukrainian Air Force: Russia launched more than 103 drones in the night attack on Ukraine. 3. Local officials said Ukraine launched an attack in the Belgorod region of Russia, killing two people. 4. The local governor said that Russia launched an attack on the Dnipropetrovsk region of Ukraine, killing one person and injuring eight people. Peace talks: 1. Trump: ① The situation between Russia and Ukraine is gradually becoming clear, and they are "very close" to reaching an agreement. ② Ukraine is unlikely to join NATO. ③ Ukraine has not yet signed the rare earth agreement and hopes that the agreement can be signed immediately. ④ It is foreseeable that the United States will conduct commercial cooperation with Ukraine and Russia after reaching an agreement. 2. Russian Foreign Minister: Russia is "ready to reach an agreement on Ukraine." 3. Russian Presidential Assistant Ushakov: Russia and the United States will continue to maintain active dialogue. 4. Russian Presidential Assistant: Putin discussed the possibility of resuming direct negotiations between Russia and Ukraine with the US envoy. 5. The differences between the United States, Europe and Ukraine are clear. The documents show that European countries and Ukraine have raised objections to some of the US proposals to end the Russia-Ukraine conflict. 6. Market news: As part of the peace agreement, the United States asked Russian President Putin to abandon the demilitarization requirement. Other situations: 1. President of Hungarys OTP Bank: We hope to return to all business areas in Russia after the (Russia-Ukraine) conflict ends. 2. Ukrainian President Zelensky: US ground forces are not necessary for Ukraine. 3. Trump said Crimea will remain in Russia, Zelensky: Never recognize it. Agreeing with Trumps view, Crimea cannot be recovered by force. 4. NATO Secretary-General Rutte met with Trump and senior US officials to discuss defense spending, NATO summit, and the Ukrainian conflict.Rising global trade risks, overall policy uncertainty and the sustainability of U.S. debt top the list of potential risks to the U.S. financial system, according to the Federal Reserves latest financial stability report released on Friday. This is the first time the Fed has conducted a semi-annual survey on financial risks since Trump returned to the White House. 73% of respondents said that global trade risks are their biggest concern, more than double the proportion reported in November. Half of the respondents believe that overall policy uncertainty is the most worrying issue, an increase from the same period last year. The survey also found that issues related to recent market turmoil have received more attention, with 27% of respondents worried about the functioning of the U.S. Treasury market, up from 17% last fall. Foreign withdrawals from U.S. assets and the value of the dollar have also risen on the list of concerns.

As Fed Hawks Push The Market, The US Dollar Index (DXY) Rises To A Six-Week High Over 104.00

Daniel Rogers

Feb 17, 2023 14:29

 US Dollar Index.png

 

The US Dollar Index (DXY) posts slight gains near 104.15 in early Friday trading as bulls flirt with the six-week high. Nonetheless, the hawkish Federal Reserve (Fed) statement and favorable US statistics, as well as US-China tensions, could be viewed as having played key roles in illustrating the DXY's three-day gain.

 

Wednesday drew major attention to the US Producer Price Index (PPI) for January, as its 0.7% MoM increase was the biggest since June. The improvement in US Initial Jobless Claims for the week ending February 10, which came in at 194K compared to 200K expected and 195K prior, was very positive. In contrast, the fall in Housing Starts in January and the Philadelphia Fed Manufacturing Survey in February appear to have received attention.

 

Following the release of the data, James Bullard of the Federal Reserve Bank of St. Louis and Loretta Mester of the Federal Reserve Bank of Cleveland expressed their hawkish inclination and supported the dollar. Bullard of the Federal Reserve noted, "Continued policy rate rises can help lock in a disinflationary trend in 2023, even with steady growth and robust labor markets, by maintaining low inflation expectations." In a similar spirit, Fed's Mester stated that the Fed will need to rise beyond 5% and maintain that level for some time. The policymaker stated that she cannot predict if the Fed would demand a greater rate hike at the next policy meeting, but she does not intend to surprise the markets.

 

Notably, the most recent FEDWATCH data from Reuters says that interest rate futures imply US interest rates could peak near 5.25 percent in July before declining to 5 percent by year's end. The same signals a greater policy reversal than the Fed's peak of 5.10% in December, which in turn suggests a few more rate hikes from the Fed and supports US Dollar bulls.

 

On a separate page, the fresh US-China tensions and Russia's determination to back down when it comes to attacking Ukraine weigh further on risk appetite and the EUR/USD exchange rate as demand for the US Dollar rises. During an interview with NBC News, Vice President of the United States Joseph Biden launched shots at his Chinese counterpart and expressed his hopes for a chat with the Chinese leader. According to Reuters, US President Biden added, "I don't believe Xi intends to fundamentally sever ties with the United States and with me."

 

Wall Street ended with a loss, while S&P 500 Futures were down 0.30 percent intraday at the time of publication. The yields on 2-year US Treasury notes increased to their highest levels since November 2022, completing the day at 4.64 percent. The yields on 10-year US Treasury bonds reached their highest levels in 2023 with the most recent reading of 3.86 percent.

 

A light calendar on Friday should give the DXY bulls the upper hand ahead of next week's Monetary Policy Meeting Minutes for the Federal Open Market Committee's (FOMC) most recent activity, given the added fire to the hawkish Federal Reserve worries, supported by solid US data.


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