Trump Deepens Dollar Woes, Saying He’s Not Concerned About Slump
ManuelSummary:
The dollar’s recent drop has come despite a rise in government bond yields and expectations that the Fed is poised to pause its interest-rate cuts at Wednesday’s meeting .
The dollar sank, deepening a four-day selloff that’s sent it to the lowest since early 2022, after President Donald Trump indicated he’s comfortable with those declines.
“No, I think it’s great,” Trump told reporters in Iowa on Tuesday when asked if he was worried about the currency’s drop. “I think the value of the dollar — look at the business we’re doing. The dollar’s doing great.”
Trump’s comments added fuel to what was already the dollar’s deepest drop since his tariff rollout sent markets into a tailspin last year and fanned fears that his erratic policy shifts would drive overseas investors to pull back from the US. After his comments Tuesday, the Bloomberg Dollar Spot Index hit a new session low, falling as much as 1.2%, as the US currency weakened against all of its major counterparts.
The president’s statements were seen as giving a green-light to traders to sell the dollar by indicating that the administration is in favor of a weaker dollar to help boost exports.
Win Thin, chief economist at Bank of Nassau, said Trump “invited another round of selling” that will trigger further dollar declines.
“Many in the Trump cabinet want a weaker dollar in order to make exports more competitive,” he said. They’re “taking a calculated risk. A weaker currency can be nice until things get disorderly.”
Some of the decline in the dollar had been caused by the abrupt rebound in the yen since last week, as traders braced for a potential intervention by Japanese officials to prop up that nation’s currency.
But the dollar’s drop has also been fanned by Trump’s unpredictable policymaking, which has rattled overseas allies and investors: His threats to take over Greenland; his pressure on the Federal Reserve; tax cuts that deepened the deficit; and a leadership style that’s deepened US political polarization.
The dollar’s recent drop has come despite a rise in government bond yields and expectations that the Fed is poised to pause its interest-rate cuts at Wednesday’s meeting — both of which would traditionally have been seen as supportive of the currency. Instead, investors have poured into rival stores of value like gold, sending it to record highs, in what’s becoming known as the debasement trade.
What Bloomberg Strategists say...
“Today’s move in the dollar may look overdone considering rate differentials remain in its favor against many peers. But, President Trump’s remarks underscore the lingering risks that will continue to batter the currency and encourage investors to seek cover elsewhere.”
—Tatiana Darie, Macro Strategist, Markets Live
For years Trump has held competing views on the dollar, touting its strength as a way to preserve an edge in bilateral negotiations while also talking up the benefits of a weak greenback for the manufacturing sector. “I’m the person that likes a strong dollar, but a weak dollar makes you a hell of a lot more money,” he said last year.
On Tuesday, Trump suggested he could manipulate the strength of the dollar, saying “I could have it go up or go down like a yo yo.” But he cast that as an unfavorable outcome, likening it to hiring unneeded workers to juice employment numbers and criticized Asian economies he said tried to devalue their currencies.
“If you look at China and Japan, I used to fight like hell with them, because they always wanted to devalue their yen. You know that? The yen and the yuan, and they’d always want to devalue it. They devalue, devalue, devalue,” Trump said Tuesday.
“And I said, not fair that you devalue, because it’s hard to compete when they devalue. But they always fought, no our dollar’s great,” he added.
Source: Bloomberg
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