by Raul de Frutos on JANUARY 19, 2017

Threats of a trade war intensified over the weekend, as President-elect Donald Trump said the U.S. dollar “is too strong.”

In one day, Trump will be president and he also warned BMW that it will face a 35% tariff on imports to the U.S. from a plant it’s building in Mexico. In addition, Trump specifically called out China and its weakening currency, stating that U.S. companies can’t compete with China because the dollar is too strong.

Dollar Index Falls to a 1-Month Low

The U.S. Dollar Index Falls to 1-Month low on Trump’s talk. Source: MetalMiner analysis of @stockcharts.com data.

Trump’s words helped sink the U.S. dollar index by 1% vs. other major currencies, falling to its lowest level in a month. Previous administrations have maintained a steady policy of backing a strong dollar and presidents have tended to refrain from commenting on the currency altogether.

Truth be told, this recent dollar weakness is not reason enough to call the end of the currency’s bull run. There are also other factors playing in favor of a stronger dollar, such as relatively high U.S. interest rates compared with the rest of the world and the expectation of domestic growth.

Still, markets watch Washington’s words about the currency carefully because the U.S. has pursued sudden shifts in the past. We still need to monitor the situation until Trump provides more clarity on his proposals, but his desire for a weaker dollar is something to keep in mind.

Industrial Metals Rebound

The base metals ETF hits one-month high as dollar falls. Source:MetalMiner analysis of @stockcharts.com data.

A weaker dollar this month contributed to a rebound in industrial metal prices. A falling dollar is bullish for dollar-denominated commodities like industrial metals.

As we remain bullish on metals, we were expecting a price rebound this month. Metal buyers need to pay close attention to new developments in the dollar. A falling dollar would give a boost to the current bull market in industrial metals.