Will Trump bring US dollar down?
US President President Donald Trump believes the US dollar “is getting too strong” and he would prefer the Federal Reserve keep interest rates low.
Trump, in an interview with The Wall Street Journal, said that his administration will not label China a currency manipulator, backing away from a campaign promise.
"They're not currency manipulators," Trump told the Journal about China.
A US Treasury spokesman confirmed that the Treasury Department's semi-annual report on currency practices of major trading partners, due out later this week, will not name China a currency manipulator.
Trump also said that he respected Federal Reserve Chair Janet Yellen and said she was "not toast" when her current term ends in 2018. That was also a turnaround from his frequent criticism of Yellen during his campaign, when he said she was keeping interest rates too low.
"I think our dollar is getting too strong, and partially that's my fault because people have confidence in me. But that’s hurting - that will hurt ultimately," Trump said.
"It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency," Trump admitted.
The dollar was down by 0.37% against the yen to Y109.20 after the interview with Trump was published. The euro initially jumped 0.4% to $1.0647.
An associate professor of Stock Markets and Financial Engineering of RANEPA, Vasiliy Yakimkin, speaking to Vestnik Kavkaza, assured that Trump's desire to bring down the dollar will not affect the US Federal Reserve's current program aimed at a gradual increase in the rate.
According to him, Janet Yellen's team does not depend on the president, and his statements can affect the parameters of the US financial markets only if he changes the team. "The existing team will be guided exclusively by the financial and economic indicators of the US: data on inflation, labor market indicators and information on GDP," the expert explained.
"Of course, with external debt of about $20 trillion, Washington would like it to be serviced at a lower interest rate. The Fed understands that they should not raise the rate sharply, since debt servicing will become expensive. Therefore, everything will depend on macroeconomic indicators," the associate professor of Stock Markets and Financial Engineering of RANEPA noted.
Yakimkin expects at least two more rate hikes ahead, but more reliable forecasts, he said, can be made after the Fed's decision in June.
The expert specified that the same quotation of the national currency can not be equally convenient for everyone. The US importers would like to see imported goods cheaper. Trump, apparently, is focused on exporters, for whom the dollar is expensive now, and they are experiencing difficulties in global foreign markets.
"The task of the US president is to return all the plants and corporations back in the US. For this purpose, Trump needs to make the dollar as cheap as possible, then the export component will automatically increase," Vasily Yakimkin concluded.
Professor of the RANEPA faculty of Finance, Money Circulation and Credit, Yuri Yudenkov, in turn, admits that the program of a phased increase in the rate of the US Federal Reserve can be frozen. "Under current conditions, it is unprofitable for the US to raise the rate, because the cost of servicing the US debt is growing, which increases a pressure on the budget," he explained.
In this regard, a freeze of the Fed rate will be temporary. "It will last until the concerted action is agreed. The rate must rise, because it should not stay as low for too long. It is clear that legally Donald Trump cannot influence the Fed, but as a president he can still recommend certain actions," Yury Yudenkov said.
In his estimation, the dollar is in an uncomfortable for the US economy zone. "Everyone expects the rate to grow and plan their actions based on this - which really strengthen the dollar. But a rapid depreciation of the dollar is also not profitable. Based on the theory of securities, if the refinancing rate in the US rises, stock prices will collapse - therefore, the expensive dollar is also unprofitable for Trump," the professor of the RANEPA faculty of Finance, Money Circulation and Credit added.