Stop does trump the dollar?
All this week took place under the banner of restoration after the failure last Friday. China and the United States noted the progress in trade negotiations that returned to the markets hope for a speedy signing of the agreement.
By September the us dollar and S&P500 reached a significant levels, overcoming and reversal which can lay the beginning of a long trend until the end of the year.
Declaration of progress in trade negotiations increased thrust in the dollar. The DXY index rose to 98.4 and ready to close the week at the highest levels since may of 2017. Moreover, he is approaching the upper boundary of the rising channel, formed as a reaction of the market on trade disputes the U.S. and many other countries.
At first glance, there is a contradiction: the dollar rose this week due to the weakening of disputes, but in General adds just due to the fact that they are.
The solution to this riddle lies in the more fundamental bound U.S. currency to the rate of growth of the world economy. As a measure of value for goods and services in international settlements, the dollar is weakening when global GDP is growing rapidly – and, on the contrary, is gaining strength in hard times.
This relationship affects the U.S. currency is stronger than fed policy. Although, of course, without an increase in rates in 2017, the us currency would have had much worse. And after March 2018, its strengthening would occur much more rapidly.
The fact is that demand for other currencies is highly dependent on the situation in these countries. Deceleration causes an impressive outflow from these markets. In addition to this, governments and Central banks are taking more drastic measures to support national economies.
The people’s Bank of China last year have eased policy in response to trade disputes. The Bank has not sold assets from the balance and fairly quickly abandoned the idea to raise rates from zero levels in the beginning of the year.
In this light, the conclusion is that the growth of the dollar is not the fed, namely trump, which is due to the trade dispute was interrupted by the simultaneous growth of different regions of the world and started the process thrust in the dollar.
But Trump, in theory, able to affect the dollar in two ways. The first – quickly to resolve trade disputes with China, abandoning the tactics of wearing down. The second is to give the order to the Ministry of Finance to carry out direct intervention to weaken the dollar. The Secretary of the Treasury Mnuchin said “yet” this option is not considered. Yet. However, it is quite tactics to scare trump’s announcement about the threat to national security in order to achieve the goal. So it was with the construction of the wall on the border with Mexico, as it was with Huawei.
Simply put, is to listen carefully to the further words of trump, so in theory he has the ability to stop the dollar’s rise, if consolidation goes some line in the sand. This line can be or the return of the index to 14-year highs (potential 5.4%), or achieving parity with the Euro (a potential 10%).
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