Trump Watch – A Rollercoaster Seven Months for the U.S. Dollar

The U.S. dollar has had an eventful seven months since Donald Trump secured the presidency. The greenback soared to nearly 13-year highs shortly after the November election, before tumbling to fresh lows in the new year. Of course, the president himself has proved to be a key player in the currency’s valuation.

The Trump Promise

For many investors, the arrival of Trump meant faster economic growth. On the campaign trail, Trump vowed to expand the economy at least 3% annually, a growth pace that eluded the Obama administration. In order to get there, the GOP candidate promised a trillion-dollar stimulus program, massive tax cuts and deregulation. These combined policies, it was assumed, would lead to faster inflation in addition to stimulating growth.

Of course, finance 101 tells us that faster inflation would require action from the Federal Reserve – namely, raising interest rates. Use

This was the backdrop that sent the U.S. dollar index to a high of 103.30 on 28 December.

But as we saw in the following months, the rally was short-lived.

The Trump Letdown

For starters, Trump didn’t hesitate to tell investors on multiple occasions that the dollar was overvalued. The last time he made those feelings known was in an April interview with The Wall Street Journal, where he said the currency was “getting too strong.”

“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting – that will hurt ultimately,” he said. [1]

At the same time, the dollar was running into volatility on weaker than expected economic data, which signaled that the Federal Reserve may be reluctant to normalize monetary policy at a pace it had pledged previously.

Trump and Interest Rates

The U.S. central bank did in fact raise interest rates back in March, but the accompanying policy statement and quarterly projections struck a dovish tone that led investors to believe there was considerable weakness in the economy. That weakness was later reflected in first quarter GDP, where the economy expanded a mere 1.2% annually. [2]

The greenback has since found itself trading at its lowest level since early November as the Trump administration struggled to implement its economic blueprint. An uncertain future has allowed competitor currencies like the euro and British pound to climb to fresh yearly highs.

The Federal Reserve is widely expected to raise interest rates again at the 14-15 June Federal Open Market Committee (FOMC) meeting, a move that could shore up the greenback over the short term. Long term, however, if the past few months are any indication, then the currency may rely on President Trump’s ability to deliver proposed reforms – a daunting task in the current political environment.
[1] John Melloy (12 April 2017). “Trump tanks the dollar after saying it’s ‘too strong’.” CNBC.

[2] Ben Leubsdorf (26 May 2017). “U.S. GDP Growth Revised Up to 1.2% Rate in First Quarter.” The Wall Street Journal.

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