Donald Trump Gets His Way on the Dollar
Author: Greg Valliere
March 21, 2019
PRESIDENT TRUMP has received little publicity for one of his major themes — he hates a strong dollar, which he believes has contributed to the U.S. trade deficit. So he got his way yesterday, thanks to the Federal Reserve’s extraordinarily dovish policy changes. A flat-to-weaker dollar should persist, a major plus for U.S. multinational firms.
AND, OF COURSE, TRUMP WON ON INTEREST RATES: Never mind that the Fed moved because the central bankers anticipate a much weaker economy than White House economists; yesterday’s Fed decisions give Trump exactly what he wanted: no further rate hikes for the foreseeable future, which Trump said last fall were “the greatest threat to my re-election.”
WE CERTAINLY DON’T THINK THE FED WAS INTIMIDATED BY TRUMP: If anything, Chairman Jerome Powell was intimidated by the ferocious sell-off in the stock market late last year, which sent him a message: abandon the hawkishness. Now the Fed worries about headwinds, largely from abroad, but there’s a Trump connection there as well. The president’s harsh rhetoric (“I’m a tariff guy,” he famously proclaimed) has contributed to the slower global growth that has helped to produce a dovish Fed and a weaker dollar.
TRUMP’S DESIRE TO WIN RE-ELECTION will have no boundaries, so what’s next? When a miserable first quarter GDP report is released in late April, he will demand a rate cut from the Fed. And why not — he’s not shy about eviscerating Powell. Will Trump seek fiscal stimulus as well? Of course he will — deficits are irrelevant in Washington, so we anticipate a cynical push to plow billions into infrastructure. A huge Pentagon spending increase is a given.
TRUMP WILL MOST NEED A VICTORY in the wake of the Mueller report, so he will push hard for a final China trade deal in the next few weeks. Regular readers know that we think expectations are too high for anything soon, but a late spring pact would provide relief for farmers, businesses and investors who will breathe easier once a trade war is avoided. That relief, combined with a soft dollar, should be a major plus for U.S. multinationals.
MANY CLIENTS ask how Trump’s job approval ratings could possibly have risen into the high-40s. Our response is that he gets extremely high grades — 70% favorable — for his handling of the economy. And now consumers can count on continued low interest rates, moderate economic growth and a solid labor market — quite a remarkable combination.
WHETHER A WEAK DOLLAR eventually produces some inflation is intriguing (look at the commodity price rise in recent weeks). But that’s a risk that Trump — and the Fed — are willing to take. So the president can campaign on the economy and might even luck out with a Mueller report that simply produces a road map for more and more investigations. The public is getting bored.
BUT TRUMP HAS TO WORRY about a looming storm — the antipathy (even hatred) toward him among Congressional Republicans who are disgusted by his defamation of John McCain. Trump’s recent poll surge could hit a wall in the coming week; even his hard-core supporters are dismayed to see such appalling assaults on an iconic war hero. At the very least, Trump is stepping on his message on the economy, which — thanks to the Fed — may continue to break his way.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2021 AGF Management Limited. All rights reserved.