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Down with the dollar

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US President Trump's adviser declared Germany to be benefitting from an undervalued euro. The idea that the US dollar is overvalued is a valid one, but focusing in on Germany is a bit weird. There are many reasons for the dollar to weaken – here are six that spring to mind:
  • The world saves in dollars, spends in euros, and is spending more this year; central banks are not buying dollars; Middle Eastern investors are selling (and may sell more); China could sell dollars to counter trade protection; discrimination and protectionism harm the US economic and corporate outlook; Trump is not popular internationally.
  • The US Federal Reserve meets. No policy change is expected, but the nuances of the statement matter. The Fed is tightening monetary policy and is debating the merits of tightening quantitative policy, but may face an easing of regulatory policy (which is like a rate cut, and may need to be offset).
  • Assorted purchasing mangers' opinion polls are due on the manufacturing sector. Markets give these indicators far more attention than they deserve. China and the US should show growth, however, with the Euro area showing growth and divergence. The UK's BRC shop price index again showed more deflation than expected.