Prospects of Trump’s last minute U-turn on tariffs buoy markets early Thursday while analysts call for caution

Market speculation over the unpredictable Trump administration making a last-minute U-turn before the 10 percent tariffs on another $200 billion worth of Chinese imports come into effect in August has left investors hopeful as global equity bulls fought back in early trade Thursday.

Investors are specifically weighing in on the prospects of possible trade talks between the United States and China, which have also soothed concerns over trade tensions escalating further.

However analysts are skeptical over the newfound optimism.

“While this false sense of optimism over the two largest economies in the world finding a middle-ground on trade may continue supporting risk sentiment, investors need to avoid complacency. It must be kept in mind that the trade war battle lines have already been drawn, with both nations showing no signs of back down, there will be no winners – only losers,” says Lukman Otunuga, research analyst at FXTM.

He said the volatility witnessed across global stocks this week continues to highlight how markets have become increasingly sensitive to global trade developments, adding that though Asian and European markets rebounded early Thursday, overall sentiment remains shaky and this could end up limiting upside gains.

The day’s early morning market wrap indicates the dollar trading higher ahead of US CPI release

Market expectations are specifically seen to heighten over the Federal Reserve adopting a more aggressive approach towards monetary policy normalization if inflationary pressures in the United States continue to build.

Thursday’s main event risk for the dollar will be the release of US CPI figures for June, which could shape US rate hike expectations for the second half of 2018.

Markets are expecting inflation to rise 0.2 percent month-on-month and 2.9 percent annually. A figure that meets or exceeds projection is likely to boost expectations of higher US interest rates, consequently supporting the dollar.

“In regards to the technical picture, the dollar index remains bullish on the daily charts. The breakout above 94.50 could open a path towards 95.00 and 95.25, respectively.”

On the other hand, the pound sterling wobbled above 1.3200 on the back of political risk in the United Kingdom and Brexit uncertainty for the most part of the trading week.

“An appreciating dollar has rubbed salt on the wound with the GBP/USD struggling to keep above 1.3200 as of writing. With expectations deteriorating by the day over the Bank of England raising interest rates amid the chaos and uncertainty, Sterling may be destined for steeper declines,” said Otunuga, adding that the GBP/USD outlook remains bearish on the daily charts with sellers eyeing 1.3190.

“A solid breakdown below this level could inspire a decline towards 1.3130 and 1.3000, respectively,” he pointed out.