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After years of complaining, did President Donald Trump finally learn to love — or at least tolerate — a strong U.S. dollar?
“It’s a great time to have a strong dollar,” he said, in an interview with Fox Business Network’s Mornings with Maria program on Thursday, while taking credit for the resilience of the currency. That echoes remarks Trump made last month, when he told reporters at a news conference that “strong dollars are overall very good,” while acknowledging that a stronger currency can be tough on exports and international trade.
As recently as last summer, Trump’s complaints that an overly strong dollar was putting U.S. companies and the economy at a disadvantage had prompted fears the administration could take unilateral action, including intervention in currency markets, in an effort to weaken the currency.
In September, Trump got into a scrap with then-European Central Bank President Mario Draghi over the weakness of the euro. And he often referred to the dollar’s strength when bashing the Federal Reserve and his handpicked chairman, Jerome Powell, for not cutting rates more aggressively.
And Trump’s dislike of a strong dollar was evident on the campaign trail in 2016, leading analysts to expect a wholesale dropping of the so-called strong-dollar policy that had prevailed, or had at least been paid lip service, since the late 1990s through Democratic and Republican administrations alike.
Analysts said Trump’s about-face might be a recognition that fighting the market is a futile task. Indeed, while some analysts attributed a firmer tone for the U.S. dollar versus most major rivals Thursday to Trump’s remarks, Kathy Lien, managing director of FX strategy at BK Asset Management, argued that “the truth of the matter is that the currency is rising for other reasons because Trump’s dollar outlook has no real impact on its direction.”
The ICE U.S. Dollar Index DXY, +0.07%, a measure of the currency against a basket of six major rivals, was up 0.2% at 100.412 in recent trade. The index is up 1.4% in May and 4.2% so far this year, but has pulled back from a more-than-three-year high just shy of 103 set in March as COVID-19 pandemic sparked global market turmoil and a world-wide quest for U.S. dollars.
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Lien said the dollar’s strength has more to do with Federal Reserve Chairman Jerome Powell’s indication Thursday that the central bank is resistant to the idea of pushing interest rates into negative territory. Rising U.S.-China tensions over blame for the coronavirus outbreak were also a factor.
The dollar’s March surge underlined the structural factors behind the currency’s strength. After all, a large majority of cross-border financing and international trade are conducted in dollars, noted Thierry Wizman, analyst at Macquarie Futures. And past episodes of financial turmoil have seen similar jumps for the greenback.
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The MarketWatch PetroCurrency Index MWPC, -0.44%, which tracks the U.S. dollar against a basket of free-floating currencies from major oil exporting nations, jumped more than 13% from its March 4 debut through March 23. It’s given back a chunk of those gains but remains up 11.6%.
The Fed’s subsequent efforts to quench the international thirst for dollars by expanding or establishing swap lines with foreign central banks and establishing a foreign central bank repo facility bore fruit, but the dollar isn’t likely to lose much ground soon, Wizman argued in a Thursday note.
That’s because the structural shortage of U.S. dollars remains, he said, putting a floor under the dollar versus most of its major rivals — a factor that’s compounded by the currency’s appeal as a haven during times of turmoil.
Meanwhile, the euro EURUSD, -0.15%, its biggest rival, faces unique downside pressures.
“It is plagued by the response to the coronavirus crisis, which has unleashed higher deficits among the debt-challenged countries, but also a large monetary policy response, and no avenue to mutualize its debts,” he said.
The euro last month traded at a three-year low below $1.07 and remains down 3.9% in the year to date.
