Mr Trump: Careful what you wish for - SocGen
|Research Team at Societe Generale notes that the President-elect has been very vocal about international trade, threatening to toughen up the US stance, brand China a currency manipulator and impose sanctions or tariffs.
Key Quotes
“Yet his policies risk pushing the US dollar even higher – making it even tougher for US-based corporations to compete on global markets. Indeed, income and corporate tax cuts (a near certainty), infrastructure spending and regulatory easing should support growth at a time when the economy is already running in a tight capacity environment, at least in labour markets, where wages have clearly started to rise. The USD will fall if the Fed fails to react to the rise in inflation. Instead, the Fed is likely to normalise policy at a faster pace, which should push real rates higher and further support the USD. Mr Trump himself has complained about Fed rates being too low.”
“There is little doubt that, from an FX point of view, a US policy mix skewed towards more expansionary fiscal policy and tighter monetary policy is bullish for the USD. The question is whether the USD, at a new cycle high and already rich relative to fair value, has already front run that policy shift. And this makes our bullish USD views relatively moderate from here. Yet we see more room in this overshoot, as the rising yields and strength are likely to exacerbate USD scarcity.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.