Trump's fire and fury cause yield curve inversion, recession around the corner?


  • Yield curve inversion sparks fears of recession on Friday. 
  • Dollar comes under strong selling pressure as markets price Fed rate cuts.
  • Markets are waiting for US President Trump to respond to China tariffs.

The United States 2-year and the 10-year Treasury bond yield curve inverted to negative 30 basis points on Friday amid heightened concerns over a prolonged US-China trade war dragging the economy into a recession. As of writing, the 10-year T-bond yield was down 6.22% on the day at %1.510 while the 2-year reference was down 6% at 1.511%.

Earlier today, China announced that it will start imposing new tariffs on $75 billion worth of US imports.  "New tariff rates imposed on some US goods will be ranging from 5% to 10% and will take effect on September 1 and December 15," China's statement read.

Although most experts were expecting China to retaliate in some way or the other to the US decision to impose tariffs on $300 billion worth of Chinese goods, US President Trump's quick and intense reaction sent T-bond yields and Wall Street's main indexes spiralling down.

"We don’t need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must stop," Trump tweeted out. "I will be responding to China’s tariffs this afternoon. This is a great opportunity for the United States."

Dollar slides as investors price further Fed stimulus

Meanwhile, in his prepared statement that was delivered at the Jackson Hole Symposium today, Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, said that the Fed was focused on how trade developments were affecting the outlook and added that they were standing ready to adjust the policy "to promote objectives." Following President Trump's Twitter rant, the probability of a 50 basis point rate cut in July rose to 14% from 0% seen on Thursday. 

Heightened probability of an aggressive rate cut also weighed on the dollar and dragged the US Dollar Index, which tracks the greenback's value against a basket of six major currencies to a fresh nine-day low of 97.67.

Among the major currency pairs, the USD/JPY pair erased more than 100 pips in the second half of the day with a strong reaction to the shift in the market sentiment. The EUR/USD pair erased this week's gains and now looks to post modest weekly gains near 1.1140. Similarly, the GBP/USD pair retraced its early drop remains on track to close the second straight week in the positive territory. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD clings to 3.5-week’s high, trades above 1.1000 figure

The pair is challenging the 1.1047 resistance. EUR/USD bull recovery from 34-month lows remains intact. Further coronavirus headlines are awaited.

EUR/USD News

GBP/USD hits new 2020 low and bounces amid Brexit rhetoric, coronavirus headlines

GBP/USD is trading above 1.2800 after hitting a new 2020, nearing the 1.2700 figure, as concerns about a no-trade-deal Brexit are weighing on the pound. Modest recovery seen in USD during the American session keeps the bearish pressure intact.

GBP/USD News

XAU/USD tumbles near two-week’s lows, sub-$1600/oz

Gold has been dropping sharply this Friday while reaching the 200 SMA on the four-hour chart. XAU/USD bulls gave up as sellers took the market down sharply. The bears seem to be in charge and more down could potentially be expected. 

Gold News

WTI remains under pressure around $45.00

Nothing new around crude oil prices, with rising concerns on the Chinese COVID-19 and its potential impact on the economy and the demand for the commodity keeping traders’ sentiment well depressed.

Oil News

FXStreet launches Real-Time Trading Signals

FXStreet Signals offers access to explanatory live webinars, real-time notifications when signals are triggered and exclusive membership to the company’s Telegram group, where users get direct guidance by our analysts and get room to discuss and interact.

More info

Forex MAJORS

Cryptocurrencies

Signatures