Be Careful For What You Wish For As Trump Finally Gets A Weaker Dollar (#GotBitcoin?)
The U.S. currency has slipped from recent highs, and analysts say it may be in for a steady decline. Be Careful For What You Wish For As Trump Finally Gets A Weaker Dollar (#GotBitcoin?)
President Trump has repeatedly bashed the dollar’s strength in recent years, only for the currency to grind higher. Now, analysts say, the U.S. currency may finally be primed for a decline, albeit a slow and steady one.
The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, has slipped 1.1% from its recent highs, though it surged Friday following an upbeat jobs report.
Those declines have come as net investor bets on a higher dollar have dropped to their lowest levels in a year, according to data from the Commodity Futures Trading Commission and Scotiabank.
Mr. Trump has said the stronger dollar places the U.S. at a competitive disadvantage to other economies. He has also criticized other countries for allowing their currencies to weaken against the greenback.
The currency’s recent declines could accelerate if the Federal Reserve eases monetary policy in the coming months by cutting interest rates, a move the central bank has recently signaled. Rate cuts tend to weaken the dollar by making it less attractive to yield-seeking investors.
However, a stronger-than-expected jobs report Friday forced some traders to unwind bets on sharply lower interest rates later this year. The report is increasing the focus on this week’s minutes from the Fed’s most recent meeting and upcoming inflation figures.
At the same time, some analysts believe the U.S. may more actively discourage other countries from pushing up the dollar by weakening their own currencies.
The Treasury recently enlarged the list of countries it monitors for currency manipulation and changed some of the criteria it uses to evaluate such cases. Under the expanded criteria, the Treasury added five countries to the watch list: Italy, Ireland, Malaysia, Singapore and Vietnam. The list already included China, Germany, South Korea and Japan.
The expanded list was part of the Treasury’s semiannual currency report, which is used to discourage countries from devaluing their currencies so that exports are cheaper for U.S. markets. The designation can be applied to countries that meet the following criteria: actively intervening in their currency markets; having large trade surpluses with the U.S.; and having large overall current-account surpluses.
Analysts at Standard Chartered noted in a recent report that the dollar has weakened during the last three Republican administrations, a move they attribute to the fallout from fiscal easing policies that GOP presidents—including Mr. Trump—have favored.
“There does seem to be a case for longer-term dollar decline, and it is just possible that the long-term could be about to start,” said Steven Barrow, the bank’s head of G-10 strategy. “We still stick to our view that the dollar will be lower when Trump leaves office than the day he joined.” Be Careful For What, Be Careful For What, Be Careful For What,