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Mazen Issa, Senior FX Strategist at TD Securities, suggests that the rhetoric has intensified ahead of the Trump-Xi meeting later this week and markets have responded in kind.

Key Quotes

“While some may chalk this up to position jockeying ahead of the summit, an abrupt thawing of relations in the coming days is overly ambitious. A cautious stance on currencies exposed to China and/or highly dependent on trade is prudent as betas to CNH come into focus.”

“This dynamic is intensified with the recent slew of Fed speak. Conventional wisdom in the recent past has generally been that a dovish Fed is positive for risk sentiment. We caution against this narrative if it emerges this week as the context has changed.”

“The Fed’s runway is shorter and neutral is now in view. Meanwhile, a trade war is brewing and global growth has slowed. The barrage of Fed speak kicks off today and could offer a prelude to Powell’s speech tomorrow.”