Authored by David Finnerty, Bloomberg macro commentator
President Trump was looking at the Fed when lamenting the dollar’s recent strength. He’d have been better off looking in the mirror. When trying to figure out whether the dollar rally has ended or just temporarily stalled, then Trump’s actions are likely to offer more insight than Jay Powell’s Jackson Hole jaw-jaw.
The Fed Chairman is due to discuss economic and monetary policy Friday in Wyoming. But given the central bank’s consistent signaling on rate hikes this year, it’s hard to see him throwing a curveball that could impact the dollar near-term.
Investors are already expecting a rate hike in September, with a strong probability of another by year-end. Hopes for guidance on next year’s plans are likely to be disappointed. There’s little upside to discussing them with all the uncertainty around trade.
If there is to be any new insight at all it could be in the realm of Powell’s thoughts on the ominous flattening of the U.S. yield curve.
The dollar’s near-term direction, therefore, may be more sensitive to Trump’s actions.
A solution to a U.S-China trade war doesn’t appear imminent; Trump this week confirmed he’s in no rush because he feels he’s winning right now. Fears of escalation should continue to prove generally positive for the dollar.
Nor is Trump in any mood to compromise with Turkey on the fate of the American pastor. Treasury Secretary Steven Mnuchin has already flagged the prospect of more sanctions if he’s not released quickly. That would feed fears of emerging currency contagion, also benefiting the dollar.
But offsetting these forces is the fallout from Cohen’s plea bargain. It’s not certain how this will play out, but it wouldn’t be surprising if the dollar experienced a kneejerk reaction lower should the presidency be challenged in the short-term.
President Trump has complained about the dollar’s strength and bemoaned the Fed’s role in encouraging it through rate hikes. The irony is that for now the largest driver of short term direction is the president himself.
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