Trump and the U.S. dollar: Actions speak louder than words

NEW YORK (Reuters) – U.S. President Donald Trump may not be happy about the strength of the US dollar, but the greenback's recent rally is a product of his own making.

The US dollar has been climbing against major currencies for a few months, with the dollar indexed up to 7.0 percent over the last three months and on Thursday hit a one year high.

The dollar has a steady stream of slowdowns in the economic stabilization of the United States, the lowest inflation rate and the lowest U.S. unemployment rate since the 1960s.

The Fed has raised rates in the United States with monetary policy in Europe and Japan, analysts said.

In the break with the usual practice by U.S. Presidents, Trump has been unusually vocal about the dollar, criticizing its strength several times, though analysts question whether it will have a lasting impact.

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

He also broke convention by criticizing Federal Reserve policy on raising interest rates, saying it takes away from the United States' "big competitive edge".

TRUMP'S FISCAL AND TRADE POLICY SUPPORT DOLLAR US

But investors and traders attribute some of the gains to the Trump administration's tax cuts which are widening the fiscal deficit, leading to more government borrowing, and the imposition of taxes against China , Europe, Mexico and Canada which can contribute to inflation.

"said Karl Schamotta, a strategist at Cambridge Global Payments in Toronto.

"That attracts dollars to the United States and increases the absorption of capital within the U.S. economy. That's going to boost the dollar in and of itself. "

The $ 1.5 trillion tax cut passed by Congress in December last year, and the $ 1.3 trillion spending bill in March.

As a result, by 2020 the U.S. government's debt levels may be the highest since World War Two, according to the Congressional Budget Office in June.

While the Federal Reserve is raising the rate of inflation in the US $ 2.9 per cent per annum. dollar strong.

"The Fed is responding to the need for stronger fiscal stimulus should imply stronger growth," said Mazen Issa, senior FX strategist TD Securities in New York. "That can lead to additional inflation and tighter labor markets. In the future, they may need to keep inflation in check. "

" For that to change we need the Fed to get back to its tightening policy or to tighten it up in Europe and Japan and I "Stephen Massocca, Senior Vice President at Wedbush Securities in San Francisco.

Purpose Analysts also attribute some of the dollar's strength to the escalating tensions over trade policy between the United States and many of its key trading partners, with investors betting the dollar will gain at the expense of emerging market currencies which are dependent on commodity export.

Companies in the United States and other countries may find they are cheaper and cheaper.

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

"A lot of the stuff that he wants versus what is actually being implemented are inconsistent," said Mazen Issa, senior FX strategist TD Securities, in New York. "That is the way markets work and the economy works. You may not have your cake and eat it too. "

Even though the dollar does tend to react, it does not change. .

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

The impact on the dollar could be a little more lasting if Trump makes it a point to attack the dollar's strength repeatedly.

"If it becomes a more constant drumbeat," said Shaun Osborne, chief FX strategist at Scotia Capital in Toronto.

Trump's remarks on the greenback also struck some of the ironic, given their strong words accusing the European Union and China of manipulating their respective currencies.

"It's like, pot, meet kettle," said Schamotta.

GRAPHIC: President Trump on the US dollar reut.rs/2L7SYtE