According to Greg Gibbs, Analyst at Amplifying Global FX Capital, it has not helped the USD on Monday that President Trump has again felt compelled to speak out against the Fed raising rates and accuse China and the Eurozone of “manipulating” their currencies.
Key Quotes
“The parallels with Turkish President Erdogan’s criticism of his central bank are hard to ignore. Trump does not have a direct capacity to interfere with Fed policy. But his comments increase the pressure on the Fed to justify its position.”
“Should the economy appear to lose even modest momentum, the Fed may face intense broad political pressure to halt further hikes.”
“Other nations would no doubt reject the accusation that they are manipulating their currencies, but Trump may use threats of increased tariffs or sanctions against other nations if their currencies depreciate further.”
“The Trump administration has already linked an increase in proposed tariffs on a further $200bn of Chinese goods to a weaker CNY exchange rate. It doubled steel and aluminium tariffs on Turkish imports reportedly because of its currency depreciation.”
“Such considerations may appear to lessen downside for these currencies. China, in particular, may see stabilising the CNY/USD rate as helping in upcoming trade talks.”
“To the extent that Trump is willing to increase economic pressure on foreign countries in response to weaker currencies, the recent gains in the USD may be another threat to global growth.”
“Trump’s currency comments seem to heighten global market uncertainty, and increase the risk of negative feedback on the US economy and in turn the USD. Perhaps not the way Trump would like to see his currency weaken, but his currency talk could work.”
“In any case, it may further undermine global markets and confidence by drawing currency into his trade war.”
Share
