Is the Cold trade war about to turn hot; what are the implications for FX? - ING

Viraj Patel Foreign Exchange Strategist at ING Bank explained that in isolation, trade wars don't cause a global downturn - nor a sustained sell-off in risky assets. 

Key Quotes:

"The question is whether the US chooses to escalate this trade fight further."

"It would be a paradigm shift for global markets - one that could see a sustained sell-off in risky assets, as well as a broader flight-to-safety in FX and bond markets."

"What has typically amplified the risks around a trade war is if it coincides with either rise in geopolitical or foreign policy risks or if increased protectionism occurs alongside a slowdown in the global economy."

"We would put the first as a bigger risk than the latter, though neither are non-negligible."

"It is the signalling channel of US trade policy that has been the key driver for the USD in prior ‘trade war’ episodes."

"Protectionist measures implicitly signal the US administration's desire for a weaker USD – and such expectations are likely to be entrenched in FX markets until credibly broken."