Trump-Xi meeting was good and both agree for Hormuz to remain open - Reuters
According to a White House official, the meeting between United States (US) President Donald Trump and Chinese leader Xi Jinping was “good” and they both discussed ways to enhance economic cooperation, Reuters reports.
Additional remarks
Two sides discussed expanding market access for American businesses into China and increasing Chinese investment.
The presidents also highlighted the need to build on progress in ending the flow of fentanyl precursors into the US, as well as increasing Chinese purchases of American agricultural products.
Two sides agreed that the Strait of Hormuz must remain open.
Both countries agreed that Iran can never have a nuclear weapon.
Taiwan not mentioned in white house readout of Xi-Trump meeting.
Before these announcements, Chinese leader Xi hailed a meeting with US CEOs accompanying President Donald Trump on a Beijing visit; however, he warned of potential conflicts if the Taiwan issue is "mishandled" by Washington.
Market reaction
No major action seen in the US Dollar (USD), WTI Oil price, and S&P 500 futures after remarks from the White House official.
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The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
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The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
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In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
