SMM News: us President Donald Trump recently renewed his call for the depreciation of the US dollar. Alan Ruskin, chief international strategist at Deutsche Bank, said Trump's statement is now increasingly in line with market fundamentals, which will give him an edge in the 2020 election.
On Tuesday, Trump tweeted again, shelling the euro and other currencies that depreciated against the dollar and criticizing the Fed again.
A growing number of analysts expect the dollar to depreciate in 2019, especially because of rising expectations for the Fed to cut interest rates. Six months ago, the Fed fund futures market was expected to raise interest rates this year, but now traders expect interest rates to be cut three times by the end of the year.
Now that expectations for a rate cut in 2019 are too high, the dollar may not depreciate as much as expected, Ruskin said. But with the support of market fundamentals, Trump's comments about devaluing the dollar will be even more effective. And the dollar is in a bear market, which helps to weaken the dollar further. He said:
"if the dollar is now in a strong position, then a few simple words will be difficult to devalue the dollar. But if the dollar is declining, then that is very effective. "
And Trump is not the only one who wants the dollar to depreciate in the 2020 election. Democratic candidate Elizabeth Warren had previously unveiled an "economic patriotism" plan, which also said that "the value of the dollar should be more actively regulated and the dollar depreciated in order to promote the development of exports and manufacturing."
The Intercontinental Exchange dollar index measures changes in the dollar's ratio against the other six major currencies. The index was dismal in 2017 but rebounded strongly in 2018, up 4.4 per cent. The dollar index rose as the Fed continued to tighten monetary policy at the end of last year.
Ruckin said Deutsche Bank statistics for May showed that the euro was low in a series of trade-weighted indices, while the dollar was overvalued against a range of currencies by a very small margin. Ruskin believes that the main reason why the dollar has been difficult to depreciate significantly is that US short-term and long-term Treasury yields are the highest among major currency countries, and the US current account balance is relatively stable.
In response to previous suspicions that the ECB was interfering with the exchange rate, the Ruskin said that while ECB officials had indeed begun to intervene slightly in markets in recent years as the eurozone economy fell, the ECB would only step in if the exchange rate was too extreme.
However, the Ruskin, like other industry insiders, is concerned that at a time of slowing global economic growth, reduced inflationary pressures and limited room for central banks to further relax monetary policy, central banks will have to use exchange rate regulation as an effective means of stimulating the economy. He said:
"such a macro situation is likely to trigger a so-called competitive devaluation of currencies, with central banks competing to minimize exchange rates, or real trade-weighted indices of currencies."
This will require G20 members to re-emphasize rules banning currency intervention at a summit in Japan at the end of this month. As a result, the use of Twitter to influence the value of the currency will not succeed in theory.