The research team at ING notes that recently, President Trump in an interview with the WSJ said that the dollar is “getting too strong” and that he prefers a “low interest rate policy”.
Key Quotes
“While we've seen attempts from the President to talk down the dollar before, the reference to interest rates makes this jawboning with a hypothetically credible action point. All assumptions around the interaction between Trump’s pro-growth fiscal plans and the Fed’s reaction function have so far been hinged on inflation being anchored around the 2% target; the baseline view is that the Fed might be forced to tighten quicker if any fiscal stimulus was delivered. But it’s clear that this chain of logic is becoming distorted and with the Trump administration set to appoint 2 new Fed Governors this year – and potentially a new Chair and Vice-Chair next year – the standard assumptions cannot be taken for granted.”
“A shift in the inflation target remains a tail risk for now (given the negatives here), but it’s not inconceivable to see the Fed allowing for a sustained period of above-target inflation, while hiking rates very gradually. While this points to downward pressure at the front-end of the US rate curve, the reality is that US growth and inflation will remain relatively robust. As such, we would still expect a bearish steepening of the US yield curve once near-term headwinds fade and in the absence of further risk aversion, long USD/JPY positions look attractive at current levels (our 1M target remains 115).”
“In the same interview, the President also stated that he won’t be labelling China a currency manipulator – taking off the table one of the potential risks stemming from the US Treasury’s FX report. In fact, we do not expect any country to meet the standard of manipulating currencies – meaning that protectionist risks should be relatively contained. We note that the Trump administration are focusing their trade attention on bilateral negotiations and this should in theory have little initial impact on FX markets. For now, the dollar’s woes remain compounded by rising geopolitical tensions (North Korea) – although in the absence of any escalation, we would expect the $ to pare some of its post-Trump loses (DXY above 100).”
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.
Recommended content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.