Investing in the USD: How Trump affects the dollar’s strength
It’s no secret that President Trump has broken from Presidential tradition and been particularly vocal about the dollar. Taking to Twitter, he frequently comments on its strength.
But what’s the impact of him publicising his opinions, and will they have a lasting effect on the dollar’s strength for forex traders?
THE TRUMP GUIDE TO TRADE WARS
Trump delivered this infamous tweet a day after he kicked off his global trade war and introduced tariffs on steel (25%) and aluminium (10%). The results on the dollar and other currencies were felt immediately afterwards.
Shares in American companies were sold off as investors foresaw how costs would rise for American manufacturers. This caused immediate losses to the USD, while ‘safe’ currencies like the Swiss franc and Japanese yen enjoyed increased strength.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!— Donald J. Trump (@realDonaldTrump) March 2, 2018
UNRESERVED REMARKS ON THE FEDERAL RESERVE
Following an interview in which Trump stated he “wasn’t thrilled” that the Federal Reserve would be raising interest rates for the third time this year, he then went on to tweet the above.
While raising interest rates keeps the dollar strong against other currencies and slows inflation, it also makes the US a more expensive country to invest in. This puts the actions of the central bank at odds with Trump’s plans.
The tweet clearly didn’t inspire confidence, as the dollar fell against the yuan, the euro, the yen and the pound soon after it was published.
China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day - taking away our big competitive edge. As usual, not a level playing field...— Donald J. Trump (@DonaldJ11746972) July 23, 2018
COMING UP TRUMPS - DONALD’S EFFECT ON THE DOLLAR
Despite Trump’s tweets and policies, the dollar has been sustained by strong U.S. economic growth. With it rising around five percent this year, the dollar is still one of the safest currencies around.
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But it’s not all good news for the USD. Some of the US government’s policies are being met with increasing caution and concern and investors are starting to get the jitters, specifically around trade talks with the US and China.
US presidents have rarely criticised the Federal Reserve in the past as its independence is important for economic stability. However, Trump loves to buck trends and has been vocal about the central bank’s monetary policy.
Sometimes he complains that they’re holding the country back, other times he says he’s confident that they know what they’re doing. His next reaction to a change in policy is anyone’s guess.
But one thing is clear: Trump and his views impact the value of the USD. So for forex traders, it’s worth keeping an eye on Trump’s Twitter feed in case what he says affects the value of your currency.