Fundamental Comment

What happens after Trump’s comments on US dollar, “Trump effect”?

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Pre his inauguration as U.S. President on January 20, 2017, Donald Trump said the U.S. dollar was “too strong.”

Accordingly, the dollar index fell from a record high of 103.80 to a low of 99.38 in January 2017, as depicted by the dollar index monthly chart.

Once again, Trump reiterated his comments about the dollar’s strength in April last year, putting it on a bearish direction that ended at a low of 90.97 in September 2017.

In late January 2018, Treasury Secretary Steven Mnuchin endorsed the dollar’s decline, which pushed it down to a three-year low of 88.24.

The Mnuchin effect lasted until the middle of April, but Trump said also in January he wanted a strong dollar.

Thereafter, the dollar has been on the rise again, with the dollar index climbing to 95, a level not seen since November last year.

Directly after hitting a one-year high on Thursday, Trump told CNBC that strong dollar “puts us at a disadvantage.”

His remarks meant that the dollar should not rise anymore, especially amid the trade war with China, as a weaker dollar would serve Trump’s trade policies.

While many analysts would claim that the dollar would start retreating, it is important to take into account the response of other countries, most notably China.

The People’s Bank of China allowed the yuan hit a new one-year low on Friday, fixing the currency at 6.7671 per dollar. That was almost 1 percent weaker than Thursday’s fix.

In case the dollar took a slide in the coming period, it can fall to 90-91 levels again over the coming months.

Recently, the market has been suffering from very high volatility, given the uncertainty about the trade war between the U.S. and China and the U.S. and its allies.

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