Dec 6, 2019

Trump may get the weak dollar he wants

Illustration: Sarah Grillo/Axios

The dollar has fallen every day this week, notching a cumulative loss of around 1% since President Trump complained on Twitter about its strength and took aim at two countries with weak currencies.

Why it matters: The decline may continue, reducing the dollar's strength in 2020, experts say.

Driving the news: With U.S. businesses continuing to complain, Trump has made it clear the currency's strength is a major administration concern.

  • On Monday, he announced he would reimpose tariffs on steel and aluminum imports from Brazil and Argentina for "presiding over a massive devaluation of their currencies."
  • Trump's decision to target Argentina and Brazil, two countries whose economies have been hurt by weakening currencies and whose central banks have intervened to strengthen them, signals to strategists at Bank of America Merrill Lynch that a number of other countries could find themselves in his crosshairs.

Between the lines: "Trump has the ability to intervene in the FX market," Michelle Meyer, Bank of America Merrill Lynch's head of U.S. economics, tells Axios.

  • "The dollar size would be pretty small in terms of flows but it would be about sending a signal that he is willing to use that tool."

Yes, but: Currency intervention has been shown to be ineffective unless coordinated between central banks, notes Kathy Lien, managing director of FX Strategy at BK Asset Management.

  • "And that’s certainly not what you’re going to get this time around," she tells Axios.

Be smart: What could really move the needle is a ceasefire in the U.S.-China trade war or Trump holding off on instituting more tariffs on Chinese imports.

  • New tariffs have boosted the dollar in the past, Lien says, by prompting traders to sell out of so-called high-beta currencies like the Australian and New Zealand dollars and emerging market currencies, and buy more greenbacks in search of safety.

The dollar also could be weakened by outside factors, Lale Akoner, global market strategist at BNY Mellon, tells Axios.

  • She expects European economic data to improve, bolstering the euro, and for emerging market currencies to rise against the dollar.
  • The British pound has risen to its highest level since May against the dollar this week and could go higher if a Brexit deal is reached, analysts say.

The bottom line: With the U.S. economy poised to slow next year, "the economic differential between the U.S. and the rest of the world will decrease," Akoner says, which should lead to less appetite for the dollar.

Go deeper:

Go deeper

Trump says he will restore steel and aluminum tariffs against Brazil and Argentina

President Trump tweeted Monday that he will restore steel and aluminum tariffs against Brazil and Argentina due to their currency devaluations.

"Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries."

The big picture: Trump's tweets show that he is not afraid to open a potential new front in his ongoing global trade war even as the 2020 presidential election approaches — and also touched on his antagonism with the Federal Reserve, which he said should lower rates to prevent similar actions from other countries.

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Dollar Tree says the U.S.-China trade war will cost it $19 million in Q4

A Dollar Tree store in California. Photo: Frederic J. Brown/AFP via Getty Images

Dollar Tree said acceleration of the trade war with China would up its costs by $19 million in Q4.

Why it matters: Even as the Trump administration says it’s close to a "phase one" trade deal with China, corporations are bearing down and preparing Wall Street for the worst-case scenario.

Go deeperArrowNov 27, 2019

British pound stalls ahead of U.K. election

Data: Investing.com; Chart: Axios Visuals

Since falling to its weakest level in more than three decades against the dollar on Sept. 3, the British pound has been on a tear. It has risen by nearly 10% to its strongest level against the dollar since May and its highest against the euro since May 2017.

What's happening: Currency traders are shaking off fears of a no-deal Brexit. Polling ahead of Thursday's election shows the Conservatives in the lead and they are expected to gather behind Prime Minister Boris Johnson's Brexit plan.

Go deeperArrowDec 10, 2019