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Home / Business / RPT ANALYSIS Trump and US Dollars: Acts say more than words

RPT ANALYSIS Trump and US Dollars: Acts say more than words



(Repeats without change)

By Saqib Iqbal Ahmed and James Thorne

NEW YORK, July 20 (Reuters) – US President Donald Trump may not be happy about the strength of the US dollar, but the Greenback is new Rally can partly be a product that he produces himself.

The US dollar has been up against the major currencies for several months, with the dollar index rising nearly 7.0 percent in the last three months and reaching a high for the year on Thursday.

The dollar has gained strength since the end of 2015, when the Federal Reserve began raising interest rates against the background of steady economic growth, slowly rising inflation, and the lowest unemployment in the US since the 1960s.

The Fed raised interest rates twice this year and will raise interest rates a few more times by the end of the year, which could ease more foreign investors into the US dollar, while keeping monetary policy loose in Europe and Japan.

In a break with the usual practice of US presidents, Trump has spoken unusually loudly about the dollar and publicly publicly criticized his strength, though analysts question whether his frequent rhetoric will have a lasting impact.

In a CNBC television interview on Thursday and Friday, Trump said he was worried about the potential impact of a stronger dollar on US exports.

He also broke the convention by criticizing the Federal Reserve's policy of raising interest rates, saying that this deprives the United States of America's "great competitive advantage."

TRUMPS COMMERCIAL AND COMMERCIAL POLICY SUPPORTS US DOLLARS

But investors and traders are channeling part of the profits back to the Trump government's tax cuts, which will increase the budget deficit, lead to more government borrowing and the imposition of import duties on China , Europe, Mexico and Canada, which can contribute to inflation.

"With tight monetary policy and loose fiscal policies, Trump has created nearly perfect conditions for a rally in the dollar," said Karl Schamotta, a strategist at Cambridge Global Payments in Toronto.

"This is pulling dollars into the United States and increasing the uptake of capital within the US economy, which will boost the dollar in and for itself."

The tax cut approved by Congress last December $ 1

.5 trillion and spending regulations of $ 1.3 trillion passed in March have raised budget deficit forecasts.

As a result, the US government's debt in 2020, according to the Congressional Budget Office in June, is the highest since World War II.

While the Federal Reserve raises short-term interest rates in June in light of consumer price inflation of 2.9 percent annually in June, longer-term bond yields could rise to attract foreign capital to finance the further budget deficit and keep the US dollar strong.

"The Fed is responding to the information provided: Stronger fiscal stimulus should imply greater growth," said Mazen Issa, senior FX strategist for TD Securities in New York. "This could lead to additional inflation and narrower labor markets, so in order to keep inflation under control they may need to raise interest rates."

"To change that, we need to curb the Fed's restrictive monetary policy or tighten Europe I do not see either, "said Stephen Massocca, senior vice president, Wedbush Securities, San Francisco.

But analysts also attribute some of the strength of the dollar to escalating tensions over trade policies between the United States and many of its major trading partners. Investors are betting that the dollar will benefit exports at the expense of emerging market currencies that rely on commodities.

Businesses in the US and other countries may be less competitive as import tariffs contribute to rising input costs, higher consumer prices and lower demand for emerging market commodities.

Trump said on Friday in the CNBC interview that he was ready to impose tariffs on all $ 500 billion of imported goods from China, possibly further aggravating a trade dispute.

"Much of what he wants and what is actually implemented is inconsistent," said Mazen Issa, senior FX strategist for TD Securities in New York. They can not eat or eat their cake. "

Even if the dollar reacts to Trump's words in the short term, analysts say the impact seems limited and they do not expect that to happen changes.

"I only see that as a short-term consequence," said Issa.

The impact on the dollar could be a little more sustainable if Trump's goal is to repeatedly attack the strength of the dollar.

"If it becomes a more constant drum beat, it's probably something that will put a heavier burden on the dollar," said Shaun Osborne, chief FX strategist at Scotia Capital in Toronto.

Trump's comments on the greenback were also somewhat ironic, as his strong words accused the European Union and China of manipulating their respective currencies.

"It's like, pot, hit the cauldron," said Schamotta.

Reporting by Saqib Iqbal Ahmed and James Thorne; additionally
Reporting by Stephen Culp; Editing by Megan Davies and Clive
McKeef

Our Standards: The Thomson Reuters Trust Principles.

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