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Author Topic: Trump's criticism of US Fed to blame for the dollar dip  (Read 252 times)
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« on: July 23, 2018, 07:11:55 PM »

On Friday the 20th of July, in an unexpected turn of events, US President Donald Trump slammed the Fed. Most notably, he mentioned that raising interest rates and having a strong dollar put the US economy at a disadvantage compared with Europe, Japan, and other countries. He continued by expressing his dissatisfaction with the US Fed's plans to raise the key interest rate two more times this year. We believe that the US president is trying to influence the country's monetary policy and the dollar exchange rate by making such statements.

Formally, the US Fed operates independently of the government, so Trump's criticisms come off as somewhat strange. Then again, the international community is accustomed to the president's outlandish remarks, which often clash with the established norms. That same day, Trump announced plans to levy trade duties on goods from China worth 500bn USD. Based on the figures, these duties could affect almost all Chinese exports to the US. According to the IMF, escalating tensions with China could lead to a 0.5% slowdown in world GDP growth.

We believe that as far as the Fed is concerned, Trump will not go further than statements, otherwise this could undermine confidence in the US dollar as a whole. It's important to note that Trump's oral intervention served its purpose: the US dollar was under pressure. On Friday, the EURUSD pair rose 1.2%, to 1.1174, 10 euros to dollars at 11.74 while US Treasury yields declined. Alpari estimates that the market had a knee-jerk reaction to Trump's statements, and in the coming days the EURUSD pair will roll back down to 1.165.
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