Guessing What Trump Will Do to the Dollar

Forex traders like investors like a degree of certainty. Profits come with volatility but also with predictable economic and monetary policy. Traders fixed on Trump’s promises to stimulate the economy and guessed that more economic activity would threaten inflation. And then the Fed would move in and raise interest rates thus pushing up the value of the dollar. As we mentioned in our last article, there is a difference in economic hope versus reality.

To the extent that optimism spurs investment we will see an economic boom, a self-fulfilling prophecy. To the extent that the administration gets off track and does things like starting a trade war the difference between economic hope and reality could be huge.

The new twitter of account, @RoguePOTUSStaff, is allegedly fed by disgruntled White House staffers who paint a picture of dysfunction and distrust around a man who wants to be remembered as king instead of president. Traders see that and they get scared. It should therefore be no great surprise that the dollar is its lowest in eleven weeks. Of course the Fed met and decided not to raise interest rates for now and give now guidance on exactly when that might happen. Bloomberg discusses the dollar and Trump anxiety.

A gauge of the dollar dropped to the lowest level in 11 weeks and Treasury yields declined after the Federal Reserve signaled it’s in no hurry to raise interest rates.

The greenback fell versus all its Group-of-10 peers after the Fed left its benchmark rate unchanged Wednesday and continued to describe business investment as being “soft.” The dollar is set for a sixth weekly drop following comments by President Donald Trump and his officials in favor of a weaker exchange rate. Australia’s dollar jumped as the trade surplus climbed to a record.

“The dollar continues to be on the back foot,” said Mitul Kotecha, head of Asia currency and rates strategy at Barclays Plc in Singapore, who expects the U.S. central bank to raise rates in September and December. “The Fed may hang on to see the new fiscal plans of the U.S. administration before we get a clear indication of how the Fed sees things.”

The Fed is waiting to see how Trump’s economic stimulus plan work out and Trump is obsessing over the poor turnout for his inauguration and suggesting that someone Photoshop the photos to satisfy his ego. It should be no surprise that traders are guessing what Trump will do to the dollar.

The Mexican Wall

A promise of candidate Trump was that he was going to build a wall between the USA and Mexico and make Mexico pay for it. This drama is playing out in real time with many aspects of a farce. Trading the USD versus the Mexican peso has been referred to as the Trump trade. Now the Trump trade is anything versus the dollar as Trump moves toward a trade war, disbanding long-stable foreign relationships and anything else that moves across his short attention span!