According to Robert Rennie, Research Analyst at Westpac, when the US Treasury Secretary talks US dollar policy, markets listen and those that are old enough to remember Robert Rubin and the ‘strong dollar’ mantra of the mid 90’s will certainly understand how important comments can be.
“Treasury Secretary Mnuchin left little debate in Davos that we indeed have a “weaker dollar policy” whereby “[it] is good for [the US] as it relates to trade and opportunities”. Now he qualified this with the point that ‘”longer term, the strength of the dollar is a reflection of the strength of the US economy and that it is, and will continue to be, the primary reserve currency”. However, it appears likely that US President Trump’s speech at Davos Friday will concur that we now have an ‘America first/ softer dollar policy’ and the world will just have to live with it.”
“The DXY index is in the midst of its worst January since 1987 and its second worst January back to 1968. Given this follows a circa 10% fall last year, this now feels like an entrenched trend. With the promise of more protectionist policies to come, Wilbur Ross slapped higher tariffs on washing machines and solar panels adding to the sense that the ‘softer dollar policy’ is but a part of the call to action to fight trade wars.”
“It remains to be seen whether this is enough to check the January ‘melt up’ in global stock markets. At the very least, the much more upbeat mood in Davos will likely have been checked by ‘America first’ policies.”
“So will the ECB/ FOMC meetings check US$ weakness? As Rich notes over, Draghi will again try to temper policy normalisation expectations and the risks around the Fed statement are tilted hawkish given tax cuts, still very easy financial conditions, firming global prospects and the ‘Davos Dollar Dive’.”
“However, 2017 and 2018 so far is looking increasingly like the 2002/ 2004 period when twin deficit concerns slammed the dollar. If history is a guide, this move could have further to go.”
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.