Trump Helps the Dollar for Now. Thursday was a dramatic day for the dollar. During the day, the currency dropped to the lowest level in three months against all the main currencies.
Then, later in the day, Trump had an interview with CNBC where he appeared to walk back Steve Mnuchin’s support of a weaker dollar.
These comments made the dollar index to gain by almost 50 basis points in intraday trading.
On Wednesday, Treasury Secretary Mnuchin argued that a weaker dollar was better for the country because it made it better for exporters.
This was not the first time Trump seemed to support a weaker dollar. In multiple interviews last year, Trump said that he was in support of a weak dollar. Remember, Trump looks at commerce on the basis of trade deficits. A weaker dollar helps him reduce the deficit by increasing the exports.
The question is, how much influence does a president have on currencies? I believe, very little. In the United States, the president is mainly a symbolic with no real power of implementing change. For example, if Trump was to exit NAFTA, the whole process has to pass through congress.
Consider what happened in 2017 where Trump’s policies on deregulation and tax reform helped the stock market but hurt the dollar.
The most important voice on currencies is the Fed chair. These are people who make policies on whether to raise or reduce rates.
Therefore, in the short term, Trump’s comments might help support the dollar but in the near-term, I believe we may see a meaningful reversal. I expect that the pair may fall to the psychologically important level of 1.3000 before a reversal starts.