The Trump administration wasted no time in working to talk down the US Dollar. Numerous officials (Mnuchin, Scaramucci, Pence) have all commented that the strong US Dollar hurts US competitiveness in global markets. In an interview with the Wall Street Journal, President Trump said “our currency is too strong. And it’s killing us.” Additionally the administration has accused a number of countries- China, Japan and most recently, Germany, of using a weak currency to gain an unfair trade advantage.
The direct comments about the Dollar has been a break with the long running strong Dollar. Additionally, Trump broke with precedent in directly commenting on US Dollar policy as talking about US Dollar policy has been the purview of the Treasury Department.
Thus far this jawboning has been effective, as the Dollar has lost over half of its post-election rally. For the time being this looks to continue, and today we’re seeing a new January low in the Dollar Index. Additionally, any short term action out of Washington will be in the form of executive orders and jawboning.
However, moving later into the year, the professed desire for a weak Dollar is going to run head on into Trump’s other campaign promises. He has proposed lowering taxes, and cutting government regulations. He wants to encourage US business investment and return jobs to the US. He has also proposed “substantial” new infrastructure spending.
The outcome of all these policies will be stronger economic growth, a tighter labor market and likely higher inflation. In turn, this will lead to a more hawkish Fed, higher US interest rates, and upward pressure on the Dollar.
The reason his stimulating policy haven’t yet affected the markets is that there has been a lack of detail about specifics. These are more complicated issues that will take time to craft new policies. In addition, they will require the administration to work with Congress, which will take time, even with a cooperative Republican majority.
The administration comments on the Dollar and global trade have been effective in pushing down the USD this year. However, as we move farther into 2017 and new policies get enacted, the administration will find its aims at odds with each other as a stronger economy will put pressure at odds with the desire for a weaker USD. Assuming Trump is able to get a fair amount of his economic policies enacted, I would look for the stronger USD to reassert itself later this year, especially in the face of tepid growth and economic uncertainty (UK, Europe) elsewhere in the world.
Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.