US: Trump views on the dollar lack credibility - AmpGFX
|Greg Gibbs, Director at Amplifying Global FX Capital, notes that the interview Trump gave to the WSJ on Wednesday has contributed to a further decline in the USD.
Key Quotes
“The WSJ reported that Trump said: the U.S. dollar was already “too strong” in part because China holds down its currency, the yuan. “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.”
The yuan is “dropping like a rock,” Mr. Trump said, dismissing recent Chinese actions to support it as done simply “because they don’t want us to get angry.”
These comments lack consistency and fail to inspire confidence that Trump understands what is driving the USD or the Chinese yuan.”
“The idea that Trump thinks the USD is “too strong” appears to have undermined the currency. However, Trump has no apparent way to control the currency. Most of his policies, (including a border tax, pursuing tougher trade agreements, tax cuts, and potential tax breaks for repatriating profits, infrastructure spending and tougher immigration enforcement), are directly and indirectly inflationary and may induce higher US interest rates and a stronger USD in the short to medium term.”
“The disagreement Trump expressed on the border tax proposed by his Republican colleagues in Congress may also have weakened the USD.”
“A border tax or other ways to discourage imports should place upward pressure on the USD, exactly a reason why some commentators are critical of the policy; noting that a rise in the exchange rate may negate the benefits of such a policy, but leave in place other distortions that tend to undermine economic growth.”
“If Trump is not sure about the policy, then it may be a reason to think it may not happen or be bogged down for some time, relieving some immediate reason for a stronger USD. But perhaps more broadly it points to a delayed and uncertain pathway for meaningful policy implementation and less reason to see Trump as a catalyst for change.”
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