Jan 17, 2017

The ever-stronger dollar confounds team Trump

King Dollar's crown grew a bit lighter Tuesday after Donald Trump said in an interview with the the Wall Street Journal that he thought the greenback was too pricey.

Currency traders took this as a cue that the President would take concrete steps to reduce the value of the dollar, and sent the Dollar Index down 0.70% as of mid-day on Tuesday.

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Money.net; Chart: Andrew Witherspoon / Axios

Meanwhile, across the pond: Trump adviser Anthony Scaramucci told an audience at Davos that he thought the U.S. economy could shrug off the effects of a strong dollar, and that the focus of the administration should be on infrastructure spending and tax and regulatory reform that would result in "robust growth."

Scaramucci's remarks are more closely in tune with markets than Trump's comments. The U.S. dollar has surged against other major currencies since election day. That trend that will work against Trump's goals of shrinking the U.S. trade deficit and revitalizing the manufacturing job market stateside, as a stronger dollar makes it more expensive for foreigners to afford U.S. goods.

How markets will handle the mixed messages: Currency traders jumped on Trump's comments to the Journal as evidence that he would make it a priority to intervene in currency markets and force the dollar down. But there's no avoiding the fact that other Trump promises, like tax cuts and infrastructure spending, will make the dollar more attractive in the long run.

Bottom line: Despite today's market moves, the dollar remains more than 2.5% more expensive than it was on election day. Economic fundamentals say that a stronger dollar is the safe bet, and it will maintain its strength until the administration unveils specific policies to reverse the trend.

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