US: No one likes the dollar right now - BBH

President Trump ousted Secretary of State Rex Tillerson and will be replaced by CIA Director Mike Pompeo as the dollar sold off on this news, points out the research team at BBH.  

Key Quotes

“Pompeo in turn will be replaced by Deputy Director Gina Haspel, who has been at the CIA since 1985.  The moves have been long-rumored but come at a delicate time given planned talks with North Korea.”

“The dollar sold off on this news, which fits into the narrative of chaos at the White House.  Tillerson was considered one of the stabilizing forces in the administration so his exit on top of Cohn's is concerning.  Bottom line is that the stabilizing forces (Cohn, Tillerson, maybe even Kelly?) have lost influence in the administration and given way to Navarro, Ross, Lighthizer, and Pompeo.  This group tends to be much more confrontational and so the US will continue to push its America First trade agenda. Diplomatic relations with North Korea and Iran are likely to come under greater pressure.”

“No one likes the dollar right now, so buying EUR, GBP, and JPY seems to be the safe trade.  Yet these three all come with their own set of baggage (ECB pushback, Brexit, Japan land scandal, etc.).  Elsewhere, we think America First is not good for small open economies and so we can't get too EM-bullish in this environment.  More specifically, we think America First means that risks of NAFTA breaking down are rising and so we'd be underweight MXN in this environment.”

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