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Trump just signaled the death of Clinton-era strong dollar policy

President-elect Donald Trump's shock comment that the dollar is too strong suggests the U.S. is about to declare as dead a two-decade policy of publicly favoring a strong currency.

"There's no question that the Trump administration would not want a strong dollar. A strong dollar does nothing good for whatever Trump is basically trying to do," said David Woo, Bank of America Merrill Lynch's head of global rates and foreign exchange research. "Yes, the U.S. fundamental story is bullish for the U.S. dollar, but the problem here is they actually don't want a strong dollar. I think it's going to go up. However, it's going to be a much more volatile climb."

Trump's remarks also took a shot at one of the most crowded trades on the planet — long wagers on the dollar. That trade has been a bet that Trump's policies will reflate the economy, causing interest rates and the greenback to rise. But that dollar move is at odds with building a more powerful American manufacturing base, because a strong dollar makes exports more expensive for foreign buyers.

The dollar also threatens the economic health of emerging-market nations, as the cost of everything there rises, including servicing their dollar-denominated debt.

The dollar index gained as much as 6 percent after the election but began retreating in early January and is now up only about 3 percent since Nov. 8. The dollar index was down about 0.7 percent Tuesday on Trump's comment and on pressure from the pound and euro. British sterling rose about 2.7 percent after Prime Minister Theresa May laid out the government's plans for negotiating its exit from the European Union and said Parliament would have to vote on the deal. The euro also rose.

Trump made his comment in an interview in The Wall Street Journal, where he said the so-called border-adjustment tax proposed by Congress is too complicated to enact. That tax is part of a proposed corporate tax overhaul and would tax imported goods at the border at a proposed 20 percent. Some economists say the dollar could rise sharply in response, by as much as 25 percent.

"This is the first time we have a president-elect say the dollar has gone too far," said Marc Chandler, chief foreign exchange strategist at Brown Brothers...


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