Last week was crazy for the US dollar because officials of the Trump administration tried to convey one binding message on the dollar policy. It happened after the Stephen Mnuchin’s statement that a weak dollar is good for trading. Stephen is the US Treasury Secretary.
Strong Currency = Successful Trading?
By the end of the week, Mnuchin still reported that a strong dollar is much more profitable for the United States. After all, done, the dollar continued to weaken. The strategists said that at the moment the trade is the critical factor for the currency. The dollar’s position may fall even further if the Trump administration proves to be protectionist or will start a trade war.
Strategists say that the dollar may soon recover its position after its recent recession. Now the primary focus will be on the Trump administration’s ability to pursue its goal of new, fair trade agreements without the emergence of trade wars and further currency volatility.
Forecasts of the Dollar Exchange rate
Despite the fact that the dollar index declined last year, according to the forecasts of 2018, it should strengthen. It happened because the Federal Reserve raises interest rates and normalizes monetary policy faster than its counterparts. However, the opposite happened, and the dollar weakened, as investment flows increased in euro and yen. This happened because the economic situation in Europe and Japan has improved.
This week at the World Economic Forum, the US Treasury Secretary announced the weakness of the dollar. For markets, this sounded like the fall of the dollar.
American banks were worried that the US economy could lose its position if the dollar fell too fast. Already in China, the issue of reducing purchases of jewelry is being discussed, because this sphere has lost its attractiveness due to Trump’s trade policy. Even though China is the most significant owner of Treasurys, it is unlikely to abandon the markets of the Treasury.
Doubts About the US Dollar
Head of the foreign exchange strategy of North America in TD Securities McCormick commented that the trade war with China was a confrontation of the dollar, the euro, and the yen. But the currencies of emerging markets will not work in this environment either.
He said that the NAFTA is a test case of how the US can behave in a broader global arena. McCormick noted that it would be interesting to see how Trump addresses the American audience and comments on trade policy. The head of the foreign exchange strategy also added that the forthcoming extraordinary elections in the Congress could affect Trump’s comments on the trading partners.
Trump looked surprised at the possibility of the US joining the multilateral trade deal. He also put forward the idea of bilateral agreements when he was considering joining the Trans Pacific Partnership. Analysts were skeptical of Trump’s refusal of multilateral trade cooperation.
Thus, the US policy is quite categorical, and this led to a drop in the dollar on the world market. In the end, this could lead to an economic downturn. And so American analysts are concerned about certain reforms and the dollar rate in the nearest future.