TreasSec Bessent’s "strong Dollar policy” is obviously bullwacky

Outlook

Today we get the US trade balance, the usual jobless claims, nonfarm productivity and unit labor costs, and factory orders. All of these are important in judging the economy but hardly ever FX market movers.

We will get some more Monday-morning quarter-backing over the Powell press conference but on the whole, markets couldn’t care less. Most analysts see it as somewhat hawkish, since Powell noted a “clearly improving” economic outlook. The labor market is less worrisome. Reuters thinks he pointed to no policy change until mid-year—presumably June, meaning after he had handed over the chair.

We say more important to FX is TreasSec Bessent trying to be TreasSec Rubin, who was the best TreasSec ever, for obfuscation if not other things.

Bessent told the press the US was NOT intervening to support the yen and weaken the dollar. This is a huge betrayal that will not be forgotten (ever) in Tokyo. He said the US has a strong dollar policy based on the right fundamentals. He cherry-picked the trade deficit and downplayed everything else. "Over time the prices on the screen can fluctuate over six months, a year. If we have sound policies the money will flow in, and we are bringing down our trade deficits so they, automatically that should lead to more dollar strength over time."

He seems not to appreciate that “sound policies” do not include erratic tariff threats, invading other countries, lying about inflation, decimating the government bureaucracy in critical places. and increasing the national debt. Finally, he is not worried about growth triggering inflation. Did he never take an Econ 101 course?

Forecast

TreasSec Bessent’s “strong dollar policy” is obviously bullwacky and just not true. It has been a long time since the trade balance affected the US currency (as it does in places that are not the hegemon). Even if the trade balance improves today, it’s not likely to boost the dollar a single pip. We pretty much have proof already in the rise in gold and other metals yesterday.

Similarly, the Fed declining to make any change is a cop-out of sorts. Labor market statistics and the jobs aspect of the Conference Board consumer confidence survey indicate labor is still very much a problem. In a way, loss of confidence in the Fed is nearly as bad as the threat to its independence.

As for geopolitics, Trump’s threats to Iran are just talk. He doesn’t have the moxie to do anything aggressive militarily—not unless Bibi tells him to.

After the dollar recovery by some amount, and the 50% retracement is probably a decent forecast (1.1826), we will need to start all over again. Believe it or not, all this is going to look different by Monday.

Food for thought

Bloomberg has a cute crypto story, Here is the opening:

Bitcoin’s “digital gold” promise is unraveling as traders forgo the token for surging metals, hurting a narrative that once defined the asset’s macro appeal.

The shift is visible not just in asset moves, but in where capital is moving — from traditional funds to blockchain-based trading venues. Over the past week, precious metal funds soaked up $1.4 billion in fresh cash while Bitcoin-linked funds saw roughly $300 million in withdrawals as the token slumped to almost $86,000. At the same time, spot gold surged past $5,500, and silver broke $118 per ounce, fueled by a four-year low in the dollar and geopolitical stress.

For a cohort of investors once convinced that computer code was superior to shiny metal, the recent stretch of greenback weakness has been a definitive wake-up call: Bitcoin failed to act as a macro hedge just as the so-called ‘debasement’ trade was back in vogue.

US political tidbit: Like a big slice of the world, we are following the Minnesota/ICE problem that could conceivably result in another government shutdown. The takeaways are (1) markets don’t care much whether the government shuts down. It’s politics, to be shunned. (2) It won’t happen, anyway. The Dems are not only weak but also gutless. They speak of impeaching the head of Homeland Security, the Botoxed puppy killer, but wouldn’t have the votes, so empty threat. (3) The government can dismiss a few ICE people but will continue in its policy stance of thumbing its nose at court orders, laws and common decency.

The liberal press is exaggerating the Minnesota protest effect: Trump is defeated, down and out, in full retreat. Krugman says “Ordinary people are ready to save democracy.” This is wishful thinking. Yes, the No Kings protests and now the Minneapolis protests are mightily impressive, epically since it’s well below zero there (-10-15 Celsius). But we had the Floyd murder and it made not one whit of difference to the policy orientation at the White House.

Is it possible that if the Dems take the midterms, we will see prosecutions and impeachments? Yes, but probability is under 50%. The only ray of light is the solidarity of the protesters and their cellphone cameras.

A Reader sent us a splendid substack by Heather Delaney Reese. She points out that the whole world sees Trump’s mismanagement and especially what seems to be cognitive decline. Here are a few of her killer sentences:

What too many people still don’t understand is that Donald Trump didn’t run for president again because he loves the job or believes in public service. He ran because it was an opportunity to carry out his retribution hit list, to amass greater wealth, and because winning was his clearest path to escaping prosecution.

If Trump is no longer able to stay in power, the same forces that elevated him will push their next useful idiot to the front. That’s what makes this moment so dangerous. Because while everyone keeps watching Trump, the machine behind him is still moving. And it’s already preparing for what comes next. This isn’t to say Trump is any less dangerous or any less evil. He is. And at this point, he could very well be thrilled with all of Project 2025—especially during his more lucid moments. But we need to remember there are others still building, still scheming, still laying the foundation for a permanent, post-democratic America. And they don’t need Trump to finish the job. They just need enough silence from the rest of us to get away with it.