Remarks made by Donald Trump in an article with the Wall Street Journal on Tuesday sparked an instantaneous selloff in US currency
Once again, Donald Trump has exhibited his power to move markets in a single interview. When speaking with the Wall Street Journal on Tuesday, Trump declared his preference for a “weak” US dollar, claiming
our companies can’t compete with them [China] now because our currency is too strong, and it’s killing us.
Subsequently, currencies in emerging markets across Asia were on the rise on Wednesday morning. According to Reuters, the Thai bhat and the Chinese yuan reached two-month highs, alongside the Taiwanese dollar hitting a three-month peak. Meanwhile, the value of US currency declined by 1.3%, marking its lowest value in over a month.
The President-elect’s recently unveiled opinions surrounding the value of the dollar has bucked a trend in US administration spanning almost two decades, whereby government officials have contrarily backed the existence of a powerful US currency as a means of monitoring inflation, keeping the US buying power strong and interest rates down.
The dollar has remained a substantially strong currency for a multitude of reasons, some of which can be attributed to expectations surrounding Trump’s other economic policies, and the ICE dollar index DXY, +0.35% had reached a nearly 14 years high as of early January 2017. However, during the last few weeks its value has gradually been on the decline, nevertheless, it remains up more than 2.5% from pre-election levels.
Credit: Dow Jones Market Data Group
Moreover, in an interview with Bloomberg, Greg Anderson of BMO Capital Markets blasted the President-elect’s comments in the Wall Street Journal, criticising him for not adhering to general government procedure.
Anderson claims that the US has
worked long and hard to get to a protocol where heads of state, finance ministers and central banks don’t target and specifically mention levels of their currency.
Likewise, Larry Summers, the former Treasury Secretary under President Bill Clinton, deemed Trumps claims to be “unusual”, adding that they left “the market confused”.
Furthermore, Barry Eichengreen of the University of California, Berkeley, has claimed that Trumps wish for a ‘weak’ US dollar is contradictory and nonsensical. He stated the following in the Reuters Global Markets Forum:
Trump wants a mix of loose fiscal and tight monetary policies, which will push up the dollar, and then he is frustrated by the strength of the dollar. He wants tariffs on imports, which push up the dollar, but then he is frustrated by the currency's strength.
Thus, the current fluctuation in the value of the dollar is undoubtedly stressing the increasing role that politics is set to play in influencing the financial markets. In line with this notion, UBS currency strategist Daniel Trum maintains:
markets are finally becoming aware of the potential negative effect of Trump's policies on the U.S. dollar. At the beginning we had lots of positive sentiment, but now we see that the focus is shifting more toward potential trade disputes and potential difficulties in Trump implementing his policies.
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