“We are negotiating harshly with other nations. We will win. But during this period of time the Fed should give me some help. The other countries are having expansionary policies […] I think China is manipulating its currency, absolutely. And I think that the euro is also being manipulated».
Donald Trump August 20, 2018
US President Donald Trump “messed it up” again yesterday. In a private meeting with Republican party donors, Trump indicated that he is not “enthusiastic” that Fed President Jerome Powell is raising interest rates, while also accusing China and Europe of manipulating their currencies, artificially weakening them. , to counteract its measures to reduce the American trade deficit. Trump has made reducing the trade deficit a priority, and the combination of higher interest rates and a strong dollar undermines export growth. The Fed has raised interest rates twice so far this year and is expected to do so again in September.
Following these statements, the dollar index, which measures the evolution of the greenback against a basket of six main currencies, fell 0.3% to 95.83 and the euro suddenly recovered levels above 1.15 USD / EUR. As a result, the EUR breaks the constant “flirtation” of recent days with the 1.14 USD / EUR area suddenly. At the opening of today it was even trading above (without it being possible to anticipate that it has been broken) of the area of 1.1508 / 15. In the shortest term (7-15 days) there may be a break, however, everything indicates that it is moving away from the 1.1310 / 45 area that anticipated the possibility of new lows of the year in the area of 1 , 1187.
Yes, you are right Mr. Trump. The EUR is being manipulated and at a time when, despite the economic data and its upbeat twists, you know you need a weak exchange rate. Something does not add up to all that.
US presidents rarely criticize the Fed’s top leaders because central bank independence is seen as an important asset for economic stability. To make matters worse, it was precisely the American president who is now criticizing him who nominated Powell last year to replace former Fed president Janet Yellen, with whom he had already had several run-ins during his time as a candidate and later as president.
However and despite the “spectacular” market reaction, it is not possible to be surprised by these statements by Trump, since they sound very similar to others made now together a month ago (last July 20) and in the who insisted that the Fed should take a more expansive stance. Likewise, Trump maintained that other countries have benefited from the measures of their central banks during tough trade negotiations, but that the United States did not receive support from the Fed.
Draw your own conclusions.