The Dollar faced a major blow on Wednesday after President Donald Trump’s remarks. In his view, the dollar was getting stronger, and he preferred the Federal Reserve to keep the interest rates low. Trump was quoted saying that the dollar was going strong because he believed that people have a lot of confidence in his administration. He further claimed that the anticipated strength gained by the dollar should hurt. Immediately after making the comments, the Dollar fell by 0.6 percent. In an interview with the Wall Street Journal, President Trump claimed that his administration had changed its position on the idea of branding China – a currency manipulator, something he advocated for during the heated Presidential campaigns. When quizzed about the possibility of extending the term of the current Federal Reserve Chair, he said that it was an idea under consideration. The present term of Mrs. Janet Yellen who is currently serving as the Federal service chair expires next year.
Trump has been on track commenting about the strength and weakness of the Dollar since February something that former US Presidents have always refrained from commenting about in public. Early February, he was quoted telling the CEO of a multinational Caterpillar that the only thing that stops you is when the dollar rises and we let other people manipulate their currencies. Experts observed that these comments aimed at China. President Trump was always on track claiming that China was a leading currency manipulator during the campaign period. In one of his campaign rallies, Trump was quoted arguing that China was a dangerous Currency Manipulator, always manipulating her currency to boost her exports.
After the news of Trump’s announcement had hit the headlines on March 30, the official Dollar index, DXY fell to its lowest. The DXY tracks the performance of the US dollar against six major rival currencies globally. Upon receiving the news, the market had a significant reaction to the news. Some of the financial experts termed the response as an overreaction to the comments by Mr. Trump. Kathy Lien, the managing director at BK Asset Management in New York, said that the market overreacted to the news. She stated that Mr. Trump might just be hedging his bets by ensuring that the American Public realizes that he isn’t backing down on trade. Kathy Lien notes that the remarks by the President may have long-term effects on the performance of the dollar in the market. The preference of the Yen has drastically increased among the investors which may not be a good sign for the dollar.
The Forex data released indicated that the dollar fell by more than 1 percent against the Yen immediately the comments hit the market. This fall was the biggest one-day decline of the Dollar against the Yen in a single day for the past three months. The data further indicates that the greenback fell below 110 Yen for the first time since late last year. To make things worse, the Swiss franc which is usually regarded as a safe-haven, the dollar dropped to 1.0024 francs. This was the lowest rate for the dollar throughout the entire week.
Following Trump’s remarks, the Dollar also fell by 0.25 percent against the Chinese Yuan. The Chinese Yuan has always been viewed as little moving currency and this fall speak volumes. The Dollar falling against the Yuan was widely attributed to the comments of a possibility of retaining Yellen as the Federal Reserve Chair said Greg Anderson who is a Global Head of Foreign exchange strategy at BMO Capital Markets. President Trump’s comments saw a shock of wave across the currency exchange world, something that was well displayed at the CMC Markets website.
The comments about China came as a great reprieve because the country (China) was walking on a dangerous ground over the issue of being declared a currency manipulator. In a move that can be viewed as desperate, China had decided to sell Dollars to keep the pair from moving even higher.
In another twist of events, Trump praised the Export-Import Bank, an institution that was vehemently fought by conservative Republicans during the Obama administration. The President claimed that the bank had helped so many small vendor companies. He was keen to point out the fact that when other countries give similar aid, then the country ends up losing an incredible amount of business.