Given that currency trading is a vote by the whole world on your country every day and now that President Blowhard believes the dollar’s recent rise was because of “confidence” in him instead of an overflow from the Obama Administration, the US dollar is likely to decline now.
Trump commented that yesterday that the dollar was too strong because of “confidence in me”, but the currency has been going sideways to down since his inauguration. Confidence in him? More likely a rising lack of confidence.
And of course, the US dollar always does decline in Republican Administrations.
That was never more pronounced in historical terms than the day George W. Bush made his “Axis of Evil” speech. That moment was the precise top for the dollar in his term. It was as the entire world heard that and thought that guy is crazy and ran for cover. It declined 40 percent and has not completely recovered. No analysts ever seem to want to talk about it, preferring to say a weaker dollar makes American multi-national companies more competitive, but think what a drop of 40 percent in net worth means to the biggest economy in the world.
Subsequently, from the day Obama locked up the Democratic Party’s nomination in 2008 the dollar bottomed. It was as if dollar bulls knew he would be President and were, after the raging uncertainties of the Bush Administration, damn happy he would be. There were some wild swings in the currency as Obama battled Congressional Republican obstruction (shutting down the government…) but once he was reelected, it was clear sailing to the upside until now.
So what now?
The new era of raging uncertainties is just beginning so, despite professed Fed Reserve tightening, it is probably best to be defensive, if not downright bearish, on the US dollar.
(right click on the chart for a larger view)