Is Trump’s Economy as Stable as he Implies?

A new campaign has started in the US, with the White House promoting the story of major economic strength during the first six months of Donald Trump’s second term. However, for traders, that may raise some eyebrows.

Many people widely recognize that Trump’s tariff policy has harmed the global trading climate. This affect not just key U.S. allies but also the country itself. The US dollar has weakened significantly, and many key economic performance indicators are down.

With the situation constantly evolving, let’s look at some recent developments from the US. We will explore how they have and could continue to impact the markets.

Discouraging jobs report

The latest job report in the US showed a mere 73,000 jobs added.
This underperformed an already muted forecast of 115,000. Healthcare and social services carried the weight of the workforce added, with 55,000 and 18,000, respectively.

Pairing with this meager increase, there was also a 62,075 job cut. The numbers from July are a whopping 29% higher than previous month’s. Government, tech, and retail were the industries that displayed the biggest decreases. Open positions also decreased from 7.7 million to 7.4 million in June. The Department of Labour also published a revision in previous months’ job data, showing much worse performance than the White House reported.

Altogether, this indicates that Trump’s plan of bringing jobs and production back to the US via tariffs may not be working out as intended. It’s clear that the economy is showing a tendency towards stalling.

Consistent with his character, Trump claimed that the poor numbers rigged the results to make him look bad. He attacked the director of the Bureau of Labor Statistics (BLS), claiming that she should be fired immediately. The claims that someone doctored the data lacked evidence.

The markets reacted sharply to this news that hit right before the weekend, with the S&P 500 losing 1.6%, and the Nasdaq tumbling even further at 2.3%. After the weekend, markets mostly recouped.

Possible rate cuts

While the Fed decided to keep rates steady just before the discouraging jobs report, many believe a cut may be the next move. Donald Trump has already demanded this earlier and criticised Fed Chair Jerome Powell for an overly rigid stance.

The next Fed meeting regarding rate cuts will come in September, and will be preceded by another job report. Even with the current sloping trend, many experts believe that the Fed will try to inject some goodwill into the economy by cutting rates, and this is especially likely if the next batch of labour data reaffirms the economy’s timidness.

Central banks may reduce rates by up to 50 basis points based on upcoming data. While this is sure to have a broad market impact, it may prove most interesting for forex traders targeting USD pairs.

While Trump’s explosive decision-making has made the dollar more volatile and unpredictable than ever, rate cuts generally boost the US economy. As such, even with abundant uncertainty, rate cuts tend to strengthen the greenback against other currencies. At least in the short term, US dollars may get injected with energy, so USD forex traders will want to keep their eyes peeled to the news cycle for the upcoming month.

Tariffs continue global impact

Tariffs have dominated the global economic news cycle and, by the looks of it, will continue to do so for a prolonged period.

Europe seems to be continuing a relatively meek policy towards tariffs, making further concessions to the US. Stuck in a deal that’s been mostly criticised as sub-par, the EU is creating further leeway for the US economy. On Monday, it announced that it will postpone the measures created as a counter to Trump’s levy policy for six months, in order for negotiations to continue in a productive manner.

The counter-tariffs were meant to come into action on the 7th of August. This date is quite meaningful, as it is also when another wave of tariffs from the US hits its global partners. The action seems to have bought some goodwill, as the EU avoided some of the sweeping tariff increases.

Canada, notably, got the short end of the stick. Tariffs are to increase from an already sharp 25% to 35%, which will have a significant impact on trade. CAD forex traders may want to prepare for a bearish market, a likely outcome in this scenario. Brazil, similarly, is facing import taxes of up to 50%, bringing its trade relationship with the US into question.

India Tariffs

Trump has taken an especially harsh stance towards India, penalising the country for trade ties with Russia. On Truth Social, the US president posted, “India is not only buying massive amounts of Russian Oil, they are then, for much of the Oil purchased, selling it on the Open Market for big profits. They don’t care how many people in Ukraine are being killed by the Russian War Machine.”

As such, India was exempt from any further negotiation space, with 25% tariffs already set. However, Trump has warned that he is ready to increase that rate if India continues with Russian oil imports.

India has called this move unjust and noted that Trump has previously encouraged it to keep importing Russian oil to help the stability of the global energy markets. Prime Minister Modi reaffirmed that India is committed to energy independence and that he won’t fold under the pressure of Trump’s demands.

Conclusiones

Global trade negotiations are full of hostility at the moment, introducing a large degree of uncertainty in the market. This means a lot of volatility, and a relative tendency to safe havens like JPY, CHF, and gold.

For some tactics, like news trading and swing trading, this is a relatively welcome environment. Large swings happen constantly and are likely to continue in a climate where surprise announcements can significantly shift economic balances. As always, it’s best to keep informed, follow the news closely and opt for smart risk management strategies to avoid excessive losses and trading frustration due to market instability.

Descargo de responsabilidad: Esta información no debe considerarse asesoramiento o recomendación sobre inversiones, sino una comunicación de marketing. IronFX no se hace responsable de datos o información de terceros en esta comunicación, ya sea por referencia o enlace.