Trump favors weak dollar; markets react

Bottom line: We see potential for currency volatility ahead, but little risk of a sharp and disruptive dollar rally. "None of the policies he's talked about are going to weaken the dollar, they're only going to strengthen it", said Eswar Prasad, a professor of trade policy at Cornell University.

The Bloomberg Dollar Spot Index added 0.2 per cent after retreating 1.3 per cent on Tuesday to the lowest in a month.

The greenback jumped to a 13-year high following Trump's election in November, and last week the president-elect told the Wall Street Journal the currency had strengthened so much American companies can't compete with those in China.

Tokyo- The US dollar regained some ground against its counterparts in Asian trading on Wednesday, with dip buying kicking in after the dollar's retreat following President-elect Donald Trump's remarks suggesting he favors a weaker currency.

Among Trump's biggest proposals are plans to cut taxes and spend more on infrastructure, plans that economists say would boost growth.

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Financials led the market lower, and as a sector fell 2.3%. He said the dollar's recent weakness had been primarily driven by positioning, which had built up heavily in favour of further dollar gains and was therefore vulnerable to exaggerated falls on negative news. We can assume his fast fingers, accustomed to tweeting about stocks, could also end up being used to jawbone the dollar lower when he thinks it's too strong - a problem I discussed lately in reference to the Plaza Accord. These higher rates of return attract more global investors to buy the dollar to invest in the USA, which in turn bids up its price.

Lo said an interest rate hike would be likely be delayed until after June.

Various estimates of the dollar's fair value, based on economic fundamentals, now find it about 15% overvalued.

The strong dollar also keeps the Treasury Department's borrowing costs low, meaning that when the United States borrows more money or rolls over existing debt, less federal spending is dedicated to interest payments than would be under a weak dollar scenario.

A trade war between the US and China and a strengthening dollar are among the biggest threats to a brightening global economic outlook, leading economists at the World Economic Forum in Davos felt. He could also direct the Treasury to intervene in foreign currency markets, selling USA dollars and buying foreign currency in an effort to bid the price of the dollar down.

  • Rita Burton