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The answer to "What's going to give the Fear Index a boost ?" was staring us in the face all along .... The threat of Thermonuclear War,...

August 11, 2017

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Not much data this week, but you can always rely on the President to stir things up a bit .....

August 21, 2018

  ref :- All financial media outlets

 

There are uncommonly few data releases this week important enough to materially affect the direction of markets. Tomorrow we've got the release of the minutes of the last FOMC meeting ..... certainly important, but unlikely to spring any surprises (famous last words). At the end of the week we've also got the annual central bankers get-together at Jackson Hole, with Fed Chairman Jay Powell speaking on monetary policy on Friday. Now that might just be revealing on a number of levels, and would be especially so if he felt moved to respond to criticism from Mr Trump. We're sure that it might be tempting for Mr Powell, but it's very unlikely that he would get into any public back-and-forth with the President ..... not at this stage, at any rate.

 

Yes, the Don's been at it again. On Friday he told a fund-raising dinner that he was disappointed that Mr Powell hadn't turned out to be the "cheap money" Fed Chair that Mr Trump thought he would be when he appointed him. That sounds like political pressure being applied on the Fed (to alter monetary policy) whichever way you look at it, and is something that's been considered beyond the pale for decades. Not that such a thing would bother Mr Trump, who can barely see a taboo without breaking it. He's miffed of course because the slow but steady upward path of US interest rates put in place by the Fed (whilst most other nations have struggled to initiate their own rate-normalisation process) is boosting the value of the dollar .... and that naturally hurts US exports and the balance of trade.

 

The President is accusing the Fed of not being supportive ..... but the Fed's dual mandate is to seek price stability and maximum sustainable employment. Well, unemployment is already extremely low historically-speaking at below 4%, and whilst inflationary pressures have been slow to come through, the current level is now above the Fed's target of 2%. With GDP growth still strong (above 4% in the 2nd quarter), the Fed would argue that they have little choice but to continue with their policy of gradual monetary tightening. Seems reasonable enough, doesn't it ...... to most people apart from the President that is, who fails to see the link between his all-out search for growth, massive fiscal policy loosening and the inevitability of higher rates. If you were feeling mischievous, you could perhaps point out to him that he might have more in common with President Erdogan of Turkey than he realised.

 

In an interview with Reuters published yesterday, Mr Trump reiterated his thoughts on the lack of help being given to him by the Fed. For good measure he also reheated his accusations about China and the EU being currency manipulators, artificially pushing their currencies lower against the dollar to gain an unfair commercial advantage. The thing is, and notwithstanding undoubted transgressions by China in the past, there is no evidence of currency manipulation by either China or the EU in recent years. Don't take our word for it .... that's the view of the US Treasury, who monitor these things and decided in their last report as recently as April that China didn't qualify as a manipulator (of course, there wasn't even a suggestion that the EU was in the frame too).

 

That means that almost in the same breath Mr Trump is :

 

1. Publicly briefing against the Fed in an effort to "influence" monetary policy, something that should be of great concern to all those who value central bank independence, and

 

2. Making accusations against competitors (some of them used to be called partners) that even his Treasury Dept. can't substantiate ..... something just "not done" in the past but which now comes as no surprise whatsoever.

 

ANYWAY ...... the point of all this is that there may not be much in the way of data releases for traders to grab ahold of, but thanks to the President there's no lack directional impetus in foreign exchange markets. The great dollar rally that has been taking place pretty much since April was already taking a breather last week, and Mr Trump's words have seen the Euro rally (EUR/USD back above $1.15) and even Brexit-battered sterling managing to stage a small recovery (GBP/USD above $1.28).

 

It's far, far too early to read any significance whatsoever into this small reversal of the dollar's fortunes. Given the interest rate differentials between the US and its competitors that are likely to continue to support the dollar it's more than possible that the uptrend for the US unit will reassert itself once the data starts flowing again. But right at this moment Mr Trump's words are the main driver on foreign exchange markets.

 

 

Now, that could be just a happy consequence of the President just shooting from the lip, as he does the whole time. Or it could be that some marking-down of the dollar was precisely what he intended, in which case for a moment in time he's been successful .... which would be a very bad precedent . If any US President, but particularly this one, took to jaw-boning markets higher or lower because he or she thought that they could, the way forward would be a very dangerous one indeed.

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