Trade Wars, Viruses and the Fed. | Summary and Q&A

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February 16, 2020
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Trade Wars, Viruses and the Fed.

TL;DR

The US Dollar has been performing well despite the negative impact of the coronavirus and trade tensions. The coronavirus outbreak has led to a contraction in global trade, which is positive for the dollar. The Federal Reserve's open market operations have influenced the performance of the US Dollar Index.

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Questions & Answers

Q: Why has the US Dollar Index performed well this year?

The performance of the US Dollar Index is partially attributed to the recovery from the end-of-year drop, influenced by the us-china trade deal's optimism. However, the coronavirus outbreak has further boosted the dollar due to the contraction in global trade.

Q: How does global trade affect the performance of the US Dollar?

When global trade contracts, the US Dollar tends to perform well as there are fewer surplus dollars generated via trade. Conversely, during strong trade growth, the excess trade dollars go into foreign exchange reserves, leading to a weaker performance of the US Dollar.

Q: How has the coronavirus outbreak impacted global trade?

The coronavirus outbreak has significantly contracted global trade, as seen through the combined traffic at major ports and the daily discharge rates of key materials in China. The impact on crude imports and shipping rates suggests a decline in demand and negative outlook for the world economy.

Q: What is the relationship between the Federal Reserve's open market operations and the US Dollar?

The Federal Reserve's open market operations, specifically its influence on bank reserve balances, can impact the performance of the US Dollar. Changes in these balances can have ripple effects on equity markets and the US Dollar's strength.

Summary & Key Takeaways

  • The US Dollar Index has shown strong performance this year, recovering from a drop at the end of the previous year, mainly due to the us-china trade deal.

  • The performance of the US Dollar is closely related to global trade. When global trade contracts, it positively affects the dollar, while during strong trade growth, the dollar underperforms.

  • The coronavirus outbreak and trade tensions have had a significant impact on global trade, leading to a contraction and potential long-term consequences for the world economy.

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