Trump’s accusations of currency manipulation have an effect on the behavior of the USA’s leading trade partners.
Finance Minister of Japan last week made it clear that the weakening of the yen would be limited, while Germany admitted the “problems with quotations” of the euro.
Central banks in Taiwan and South Korea have limited dollar purchase.
“Accusations of currency manipulations removed from the agenda the intervention in the foreign exchange market”, – said Sean Keane, an analyst at Triple T Consulting, who previously held the position of the head of the Asia-Pacific rates division Credit Suisse.
Concerns of Trump’s administration that the dollar is suffering from overvaluation, and the lack of fiscal stimulus, led to these changes.
“The most powerful last week were the currencies of Taiwan and South Korea, which implies an increased sensitivity to anything that can be regarded as currency manipulation”, – said Ray Attrill, global head of currency unit of National Australia Bank in Sydney.
According to two senators, Trump will receive the support of the Congress, if he declares China a currency manipulator, as he had promised during his election campaign.
Currency reserves of Switzerland’s central bank stopped growing, that was previously observed during attempts to weaken the franc. Swedish Riksbank argues that the growth of the krone this year meets the expectations.
Paul Bednarzyk, Managing Director of Division of currencies and G-10 rates at 4CAST-RGE, notes that the intention of a number of countries to soften their monetary policy have changed since the presidential election in November.
The growth of the dollar came to an end?
According to a number of experts, the dollar is waiting for the weakening, as political uncertainty increases.
“Aggressive” remarks of the Fed’s head Janet Yellen at a press conference on Wednesday could not support the currency, which has registered the biggest daily drop in two weeks next day.
Speaking before the Congress, she stressed that the central bank expects three rate hikes this year.
“The market does not believe in Yellen’s promises, and that says a lot”, – said Boris Schlossberg, currency strategist at BK Asset Management.
Political uncertainty affects the dollar, as well as the fixed income market, he says, adding that he doesn’t recommend long positions on the dollar.
In his opinion, we should sell the currency before the yen hits the mark of 115 against the dollar. The relationship between these currencies is a key indicator of dollar strength, as its weakening is associated with the yen’s rise.
“The dollar will remain in the range until the details of Trump’s budget plans become clear, but we keep “bullish” mood”, – the experts of the Bank of America Merrill Lynch admit.
But the dollar index shows a technical reversal pattern “head and shoulders”, and a break below 99 may negatively affect the currency.
“Many investors expect that in 2017 the dollar will continue to grow. Therefore, if this rollback is long, a number of investments will suffer”, – analysts conclude.