USD to Continue in Downward Trend Begun Early in 2017

$USD, $CNY

The financial markets got some insight into The Trump Administration’s Fx (foreign-exchange) policies.

Monday, US President Donald Trump accused Russia and China of devaluing their currencies while the United States raises interest rates, prompting China to accuse the United States of sending confusing messages.

Trump said in a Twitter post Monday that “Russia and China are playing the Currency Devaluation game as the US keeps raising interest rates. Not acceptable!”

At the core of President Trump’s keep’em guessing Twitter feed was that USD should go down. There may also have been an implicit attack on the Fed included.

The President while singling out the currencies of China and Russia, he has put the Fx (foreign-exchange) market on notice that a race South could be/is on the cards.

The USD Spot index promptly fell the most in 3 weeks.

US Dollar (.DXY) Index -0.1% at 89.52 $EURUSD -0.1% to 1.2368 $GBPUSD -0.3% to 1.4298 $USDCHF +0.6% at 0.9658 $USDJPY -0.1% to 106.97 $USDCNY -0.2% to 6.2792

This seems to be confusing because the US Department of the Treasury on 13 April delivered to Congress its semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.

The report concluded that while the currency practices of the 6 peer countries were found to require close attention, no major US trading partner met the relevant legislative criteria for enhanced analysis in Y 2017. Further, no trading partner was found to have met the legislative standards for currency manipulation during the current reporting frame.

The Big Q: Should financial markets, and investors care?

The Big A: Yes, because when there is a case of confusion over a Key economic policy then this is a signal that markets and  investors should care about.It is a fact that USD is vulnerable, not because of the views of President Trump, but because of The Trump Administration’s policies.

The Administration has aggressively pursued a policy calculated to increase the size of the US current account deficit. That means that the United States needs to borrow more and more from the rest of the world.

At the same time, the rest of the world is less and less inclined to lend money to the US, and that combination puts pressure Southside on the USD.

The uncertainty over policy could/has reduce international investors’ confidence to invest in the United States, and again pressure the USD.

Hang on, that is really not new information for markets as well as for well-informed investors now, as the we have seen the USD come down from 100+ in the past 14 months, my call is down to the high 70’s sooner rather than later.

You can follow the Buck and other Key peers daily here at: Forex Morning Briefing.

Stay tuned…

  account, China, CNY, currencies, deficit, devaluing, dollar, exchange, FX, index, investors, market, president, Russia, Trump, UDD

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