A trade deal with China could halt the rise of the dollar, but could not stop as President Donald Trump concentrates on tariffs on European cars.
Strategists say the dollar's first reaction, if the US and China were to negotiate a trade agreement, would be a decline as emerging market currencies rise and the euro will rise, at least in the short term.
However, it is expected soon that the Department of Commerce will publish the findings of its study on the global automotive industry based on national safety concerns, and many analysts believe it will recommend tariffs for European vehicles. The report is expected to arrive on February 17, and the administration will have 90 days to respond.
Mark McCormick, senior currency strategist for TD Securities, said the euro could move to the top of its recent range following a China deal and rise to about $ 1.16. "If there are European tariffs, we go to 1.10," he said. The Euro / Dollar was at 1.1264 on Wednesday.
"Markets are trying to produce different results, and they are all over because no one is convinced what to do with an asset class," McCormick said of the impact of trade wars. "It is weakening global growth, it is affecting the business of US multinationals, it is affecting the local economies, it is changing the evolution of monetary policy, it is becoming a very difficult environment to develop scenarios, everyone is waiting only one solution, whether it is the Brexit, Trump China trade issues, some of the broader discussions around the trade. "
The euro is now responding to the weakness of European data, concerns over Brexit and uncertainty in trade. Trade experts say the US is likely to reach a China deal before they target Europe, and then Trump could raise tariffs.
"Car tariffs would hit the eurozone very hard, it would be a bargaining tactic, and I think the problem is that you could have a very negative reaction to global financial markets, as it would undermine sustainability of this kind," Ben Randol said. G-10 foreign exchange strategist at Bank of America Merrill Lynch. "It only feeds the narrative of a generalized global trade uncertainty."
The euro would dive into new tariffs, and the dollar would consolidate.
"The US dollar is rising because of the uncertainty in the trade, because the rest of the world is hurt more," said Randol.