trump suddenly became a supporter of the strong dollar

Why the rhetoric has changed?

Yesterday, the President of the United States Donald trump is very unexpectedly spoke in favor of strengthening of the American currency. In an interview to FOX he said, “Right now it's good to have a strong dollar. Right now to have a strong dollar – well”.

This is exactly the position that administrations of U.S. presidents have publicly supported at least since the 1990s. However, in 2017 the trump talked about the benefits of the weak dollar. The constant prodding of the Federal reserve to a more lenient policy is also poorly correlated with the commitment articulated position.

So why the rhetoric has changed? This is for two reasons.

First, it is typical of politicians tactics: can't stop the movement – to lead it. The turmoil in the financial markets in the first quarter of this year, among other things, have generated powerful traction in the dollar. Capital reached home, plus the American currency was chosen as a refuge. If you look at the USD exchange rates against the Euro or the yen, we will see some powerful shifts, as these currencies for the most part, in the same weight category: is the payment instrument of the rich economies with low rates. The Brazilian real, Turkish Lira and many other currencies significantly lost since the beginning of the year, underscoring the trend in the growth of the dollar.

Secondly, there comes a time of competition for capital. Despite the fact that the fed is buying unprecedented amounts of assets, borrowing of the US government even more unprecedented. The white house plans to borrow more than $4.4 trillion at year-end and will take significantly more common in the next few years. In other words, the US President should behave as a salesperson at the Bazaar, praising their goods and noting its value, because of this “goods” promises to be very much in the near future. It is important that the secondary market has not been a parallel strengthening of the proposals, that is, to existing owners of “product” not to get rid of it.

The Treasury States, in contrast to 2009, now relies on the issue of long-term government bonds, in order to use a period of abnormally low interest rates and avoid the need to again and again to enter the market to refinance debt. Rates on these long term bonds are most susceptible to change: considering the far horizons, investors require more of a payment for long-term risks, and also take into account trends in the currency against major rivals. And here the dollar has something to boast about.

Thus, to recruit trump to their allies, the dollar is able to maintain the trend of consolidation throughout the period when the US Treasury needs money from the outside, i.e. in the coming quarters.

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Source: finversia.ru

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