In the past one month, the EUR/USD pair has moved up and down. It has moved to a high of 1.2477 before losing the gains to a low of 1.2237.
The pair reached the above high on March, 27 following increased pressure about trade. Then, investors believed that the dollar would be a bigger loser if the United States started a trade war.
This is because China is primarily a communist country. As such, tariffs on Chinese goods would not be felt on a larger scale than those in the United States. In other words, Chinese supplies are more widespread than those of the U.S.
On the other hand, the products China would target from the United States would be felt by specific regions. For example, most of the soybeans the U.S exports to China come from Ohio, where Trump has a lot of support. In addition, targeted tariffs on planes would affect a company like Boeing, which manufactures its planes in the U.S. Therefore, in case of a trade war, the U.S would be the most affected.
Going forward, it is going to be a very difficult environment for the dollar. Yes, the economy is improving, more people are working, the manufacturing industry is doing well, and the country has become the leading producer of oil. However, most of these things happened before there were prospects of a trade war.
Today, the dollar is higher slightly following hopes that the tariffs announced by China and the U.S will not go into effect. This is a relief to many in the market who believe that dialogue is the only solution to the ongoing problems.