Trump is to blame for strong dollar, the Fed: Economist



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<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "In President Trump's usual complaints about the & nbsp;Federal Reservehe blames the central bank for a U.S. dollar that's too strong. On June 11, he tweeted that the & nbsp;euro and other currencies& nbsp; have been devalued against the dollar, putting the US at a big disadvantage and blamed the Fed for being "way too high." "data-reactid =" 15 "> In President Trump's usual complaints about the Federal Reserve, he blames the central bank for a US dollar that's too strong.On June 11, he tweeted that the euro and other currencies have been devalued against the dollar, putting the US at a big disadvantage and blamed the Fed for interest rates being way too high . "

But analysts at Capital Economics say that Trump's own protectionist trade policies are also responsible for the dollar's strength.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "If it was only the & nbsp;Fed's actions that matteredMichael Pearce, Senior U.S. Economist at Capital Economics. "Investors are betting on interest rate cuts, and that should be pushing the dollar down," he says. (Higher interest rates typically increase the price ofvalue of the dollar.) "data-reactid =" 19 "> If it was only the Fed's actions that mattered, the dollar would be weakening right now, says Michael Pearce, senior US economist at Capital Economics." Investors are betting on interest rate cuts next few years and that should be pushing the dollar down, "he says.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "But that has not happened. The & nbsp;dollar& nbsp; is up 2% vs. the & nbsp;euro& nbsp; which is down over 2% year to date as of Friday morning. "data-reactid =" 20 "> But that has not happened The dollar is up 2% vs. the euro which is down over 2% year to date as of Friday morning.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Trump sees a strong dollar" "I want a strong dollar but I want a dollar that does not make it so great for our country, it's not so much that it makes it prohibitive for us to do business with other nations and their business," Trump & nbsp;said back in March. "data-reactid =" 21 "> Trump sees a strong dollar" How do I get a strong dollar? " "Trump said back in March.

If the U.S. dollar is less expensive, it is more likely to be U.S. manufacturing, limited imports, and help reduce the trade deficit.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Trump has lambasted the & nbsp;Fed& nbsp; many times since it's been in the White House for what he says is overly & nbsp;tight monetary policy. The Fed has increased its rate from 2.25% to 2.5%. & Nbsp;Trump said in an interview& nbsp; in March with Fox Business News that the economy would have grown over 4% instead of & nbsp;3.1%& nbsp; if the Federal Reserve had been raised during the year 2018. "data-reactid =" 23 "> Trump has lambasted the Fed The whitewash Rates in December to a target of 2.25% to 2.5% Trump said in an interview with Fox Business News that the economy would have grown over 4% instead of 3.1% if the Federal Reserve had been raised during 2018.

<h3 class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm (0.8em) – sm" type = "text" content = "Protectionist policies"data-reactid =" 24 ">Protectionist policies

Trump's own protectionist trade policies are to blame for the dollar's recent rise, says Capital Economics.

U.S Treasuries – thus boosting the dollar. "President Donald Trump's trade agenda … has prompted some of that flight to safety. The threat of protectionism, the rising tariffs on China [those are factors that are] playing into this, "says Senior Economics Capital US economist Michael Pearce.

Trump is right that the euro and other currencies are devalued compared to the dollar, but Pearce says the weakness is not exceptional. The Fed's major currencies dollar index (which includes the euro, Japanese yen, and Canadian dollar, among others) is only around 14% above its long-run average over the past 46 years.

capital economics chart on currencies

Pearce says the euro being "devalued" is not a deliberate strategy, but a byproduct of the weakness of the euro-zone economy. The European Central Bank has had to keep interest rates very low for a long time in order to boost the economy.

<h3 class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm (0.8em) – sm" type = "text" content = "Trade deficit"data-reactid =" 40 ">Trade deficit

Trump often talks about the need to address the trade deficit. "We're the bank that everybody wants to rob. And that's what they've been doing for a long period of time … $ 800 trillion we have in trade deficits with other countries, "Trump said in a CNBC interview on Monday.

The trade balance is the basis of the current account deficit for the U.S. and it has stayed below what is considered a sustainable 3% of GDP, according to Capital Economics. "The current account deficit remains small so we're close to balance. So we do not have a big current account deficit which may be undermined the dollar further ahead, "Pearce says.

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