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Frankfurt In fact, it is an unwritten law in the United States and Europe that politicians do not interfere with the interest rate policy of central banks. US President Donald Trump obviously sees it differently. In an interview with US broadcaster CNBC, he criticized the recent rate hike in the United States and warned against a strong US dollar. The exchange rate of the euro had fallen and "the Chinese currency was falling like a stone". In contrast, the US dollar has increased. "I have to tell you that it's a disadvantage," complains Trump.
Trump's comments fuel concerns that the escalation of the US trade dispute with China and the EU could lead to a currency war. After all, the two are closely linked: a low exchange rate tends to reduce exports abroad, thus improving the competitive position of the United States in the retail sector.
The dollar rate fell sharply after Trump's statement. Friday morning, the European common currency was trading at $ 1.1668 – Thursday afternoon, the European Central Bank (ECB) had set the benchmark rate at $ 1.1588. The question is: what can Trump really do?
Often, verbal statements about the exchange rate have had only a short-term effect on the exchange rate. "The words are good and good, but ultimately the market wants to see the action," says Esther Reichelt, Commerzbank's exchange strategy. If Trump really wanted to reach a lower dollar exchange rate, he would have to interfere with the central bank's monetary policy.
This is exactly what Trump suggested in the interview. He said about the Fed's latest rate hike in June: "I'm not thrilled." After each stimulus, monetary authorities wanted to raise interest rates. "I'm not happy about that," said Trump. He does not like "that we put all this work into the economy and then I see how interest rates go up."
Low interest rates tend to stimulate the economy because businesses can lend cheaper money. This changes slowly as a result of interest rate hikes. Trump's influence on the US Federal Reserve is limited. Formally, the Fed is independent. However, unlike other central banks such as the ECB, their independence is not legally protected. Trump can also influence his appointments to the governing body of the US Federal Reserve.
Up to now, contrary to what many expected, he has slowed down a lot. "Trump has appointed recognized experts," says Esther Reichelt. For example, he made Jerome Powell the new head of the Fed and appointed Vice President Richard Clarida equally respected.
Trump demanded the opposite early in the year
"The Fed will hardly let Trump influence it," says Berenberg chief economist Holger Schmieding. The curious thing from his point of view is that the actions of the American president are actually more likely to contribute to the rise in the dollar exchange rate. Trump sows for months of uncertainty and fear. "This leads to inflows into the US dollar hut, whose exchange rate has risen this year," Schmieding said. Since April, the US dollar has increased about eight percent compared to the Chinese yuan. He also gained more than five percent against the euro.
Subject: Foreign Exchange
This is not the first time that fears of a currency war have arisen. Earlier this year, remarks made by US Treasury Secretary Steven Mnuchin at the World Economic Forum in Davos sparked such fears. "In terms of trade and business opportunities, a weak dollar is good for us," he said.
From the analysts' point of view, this has also contributed significantly to the depreciation of the dollar against the euro at the beginning of the year. At the time, however, Trump himself went against it and said, "The dollar will get stronger and stronger, and in the end I want to see a strong dollar."
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Tags dollars Donald exchange strength Trump WAR warns
