Let the Jawboning Begin. Trump Gets his Weak Dollar but Will it Last?

This time last week the markets were up in arms over the FED’s apparently anticipated shift in the monetary policy framework.

In the aftermath of FED Chair Powell’s speech from Jackson Hole, the dollar took a dive. Well, another one…

Hardly surprising when considering the fact that the FED assured the markets of low for longer.

Perhaps more poignantly is the fact that the FED has ultimately succumbed to the pressures of the U.S administration.

It wasn’t too long ago that Trump was lambasting the recently appointed FED Chair. In all fairness, perhaps that should have continued through to the 2020 Presidential Election.

Yet by some form of a miracle, Trump got his way…

Many will recall the market euphoria that ensued on that famous day when “sure thing” Clinton dropped the ball.

We eventually saw the Dollar Spot Index reach 103 levels in response to Trump’s shock victory.

We then saw risk sentiment sink the Dollar to sub-90 before the rebound to 2020 a closing high 102.817.

Since then it’s been a disaster for the Dollar bulls.

The independent FED delivered the policy easing that Trump had been pushing for. Trump delivered the fiscal stimulus needed to deter safe haven enthusiasts. And finally, the U.S administration got China to play ball.

That wasn’t the last nail in the coffin for the greenback, however.

It was the FED’s revised monetary policy framework.

From March 20^th, 2020 to the end of day 2^nd September 2020, the Dollar Spot Index was down by 9.70%.

Was it the FED or the Administration?

We all like a good conspiracy theory and there have been many since November 2016.

Fake news is a hot ‘potato’ tossed around in the higher echelons of Capitol Hill.

I’ve yet to hear of any theories behind the administration’s willingness to open the borders to the COVID-19 pandemic, however.

Perhaps a sensitive topic or just too farfetched?

The vaccine…

As the pharma global rushes to deliver an effective vaccine, the U.S President seems more than eager to force the FDA’s hand.

The only reason for this is that the vaccine and probably nothing else will save Trump’s bid for a 2^nd term. It may not even matter how effective as long as one is available before the big day…

The Trump Effect

Putting COVID-19 aside, Trump ultimately delivered on each and every one of his campaign pledges. Or did he?

• Iran is back to being an enemy of the state.
• U.S equity markets are at record highs.
• Healthcare reforms, tick.
• Taxes, done.
• Oil and banking industry easing of regs, done.
• Forced China into a corner and a phase 1 trade agreement, tick.

There were also the odd curveballs. The befriending of Kim Jung Un, the riling of Putin, and China and HK…

But,

Making America great again? At this juncture, it feels like an epic fail.

Manufacturing has not returned to America. Likely for the very reason that it left the U.S in the 1^st place. Cost…

Unemployment hit an unprecedented high and the U.S economy made the depression and the Great recession look like an economic speed bump.

Yet,

He is not down and out and still has a chance of winning the Presidential Election.

Even the #Black Lives Matter and #Me Too movements have failed to sink his chances. Let’s face it, both should have left Trump, not on the ropes, but on the canvas.

The Run-Up to the Big Day

We’ve seen the markets relatively numb to the news wires, fake or not. This will likely change in the very near future. Trump is also likely to take the gloves off. He doesn’t like to lose and if he does, he will go down all guns blazing. It may not be pretty but it is what the American people voted for back in 2016.

So, with the dog fight kicking off on Capitol Hill, there’s one other issue for the markets to consider.

Central bank divergence and currency manipulation…

It had been a little quiet until Tuesday when ECB member Lane made a very innocuous but unexpected statement.

Yes, the ECB is still concerned with the EUR/USD exchange rate. It makes perfect sense. While the ECB is reliant upon a consumer-driven recovery, it cannot write-off the importance of manufacturing.

Then we have Australia, Canada, Japan, and New Zealand, to name but a few…

As we enter the next round of policy decisions, few of these exporting greats will be happy with the prospect of a prolonged period of currency strength.

Imagine each and everyone being added to the Trump hit list…

It is not unthinkable and it would be very much Trump to tackle any currency manipulation head-on.

After all, the U.S President managed to tame the FED that seemingly delivers on his every whim. Why would he allow the likes of the ECB to rain on his parade?