The U.S. dollar has been in the spotlight since before the presidential election. Initially what Donald Trump delivered in speeches was mostly “inward looking”. Many research organizations then believed that Trump’s policies may hinder U.S. growth and thus may cause an upheaval in the dollar.
An ABN Amro analyst then saw prospects of inflation outdoing growth, negative real interest rates and a “longer-term downtrend for the U.S. dollar.” Moreover, Trump is a ‘low interest rate person’. Concerned about the U.S. economy’s $19 trillion of debt, Trump wants to keep interest rate low ahead so that the country does not have to end up with a much higher interest payment.
If this was not enough, Trump was expected to push for currency wars against the key trading partners of the U.S., as per the source. Agreed, his mode of war was supposed to be via tariffs, but a lower greenback route wasn’t completely brushed off.
What Happened to Dollar Post Election?
In reality, speculation over fiscal stimulus to be introduced by President Trump, low taxes, an easier regulatory environment and more domestic job creation were expected to boost growth and stoke inflation in the U.S.
Rising oil prices in the wake of an OPEC output cut deal in late 2016 also played a role in pushing up inflationary expectation. Added to this, was an improving U.S. economy and the resultant possibilities of faster hike in rates by the Fed. All these took the greenback to a 13-year high post election in November (read: Currency ETF Winners & Losers Post Trump Win).
Trump Again Talks About Dollar Overvaluation
On April 12, Trump again tried to get the greenback off its high horse. He indicated that the U.S. dollar “is getting too strong” and wishes that the Federal Reserve keeps interest rates low. The President also kept the possibility of re-nominating Fed Chairwoman Janet Yellen and supported her low interest rate policy, as per Wall Street Journal.
