Trump and the US Dollar

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The U.S. dollar climbed over 1.5% versus the Yen right after the FBI stated that they will be sticking by the conclusions of the original probe in July. It was expected for the dollar to strengthen with Clinton’s victory and weaken with Trump’s. Trump has promised to tear up existing U.S. trade agreements and was seen upredictable by investors. A panic was expected in selling of dollar and buying ‘’safer’’ currincies in the short run whereas in the long run, the dollar was expected to rally due to Trump’s policies, including pledges to cut taxes and spend as much as $500 billion on infrastructure programs, which would cause inflation and eventually lead to higher U.S. Rates and bolster the dollar’s appeal.

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On the other hand, Trump’s plan to attract American multinationals such as Microsoft Corp. and Apple Inc. to bring billions of offshore cash home would ultimately drive demand for the dollar. On the other hand, it is expected for higher levels of interest rates and economic growth due to his promise to expand fiscal policy through tax deductions.
Donald Trump’s inauguration speech did not really touch on specific econonic or trade policies and because of that, the decline of the U.S. dollar was modest compared to what was really expected.

Let’s look at some economic factors from 2016:

– Non-agricultural employment stayed just above 150K rally.
– The unemployment rate fell below 5%.
– The PCE (Personal Consumption Expenditures) rose 1.7% in a yearly basis.
– The core inflation was stabilised between 2.2-2.3 levels.
– The third quarter GDP revised up to 3.5% gains.
– Trump stated that he will increase the public spending for new infrastructure and that the US will enter a rapid recovery period.

What is being expected?:

– The public investment is expected to create new job vacancies and opportunities.
– After FED assessing the economic activity, the labor market and inflation, the members have agreed to raise the target range for the federal funds rate ½% to ¾ %.
– The FED’s increase in the interest rate may attract international capital flows into the country.
– The capital inflows from emerging markets to invest their current account surpluses will play an important role in lowering treasury yields and returns on other ‘’safe’’ U.S. assets.
– Donald Trump’s victory is still unclear whether it’s going to be a threat or beneficial to the U.S. Dollar in the medium-to long term.
– The dollar movements are expected to remain difficult to forecast due to uncertainty but it can be said that the U.S. Dollar will respond immediately to any challenges or new opportunities.

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