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Risk events keep on coming this year but we can always rely on the new American President-Elect (A.P.E) to stoke the fires. This week, notably in his inauguration week, Mr Trump turned his attention to FX markets and specifically the ‘overvaluation’ of the dollar.
In his first major foray in to this area, Mr Trump stated in an interview that ‘our currency is too strong, and it’s killing us.’ Together with an about turn in his border adjustment plan, which some economists reckon would boost the dollar by 20%+, we saw sharp moves in the majors. Eight of the ten G10 currencies rose more than 1% on the day versus the dollar.
Does this typically brazen approach signify the beginning of the end for ‘strong dollar’ policy? Many commentators are calling Mr Trump’s remarks random and that we cannot take them literally. The issue we have with this is that they are becoming more frequent! Indeed, in this instance, one of his key advisers backed up his comments soon after.
So from Twitter diplomacy, to verbal intervention in currencies, we have to get used to this increasingly volatile state of current affairs. If we do have a contravention of decades of U.S economic policy, then we will see dollar bulls abandoning the Trump bump and the abrupt end of the greenback’s 14 year uptrend.
During his campaign, Mr Trump said many things which he has since reneged on. He promised on day one of his presidency that he would declare China a currency manipulator. If this happens, then from that point on, we may be able to determine one of Mr Trump’s key planks of his economic policy. This will further dictate amongst many things, our outlook on dollar direction, bond performance, yield spreads and commodities. Over to you, the A.P.E…
US Dollar Index Weekly Candle Chart
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