Greenbacks Pale


Image source: Madeleine Stuart / Finimize

What's going on?

The value of the US dollar fell by 0.4% on Tuesday following comments from US President Donald Trump in a Reuters interview (tweet this).

What does this mean?

President Trump accused China and Europe of manipulating their currencies to combat trade tariffs that the US has imposed on them. Currency manipulation is when a country or economic area intentionally tries to drive the value of its currency down to make its goods appear cheaper to foreign buyers. The value of the Chinese yuan has fallen almost 10% against the dollar since April, when the US-China trade war started to heat up – making Chinese goods more affordable to US customers (and working in opposition to the tariffs, which make Chinese goods more expensive).

At the same time, President Trump said that he was “not thrilled” with the US Federal Reserve (a.k.a. the Fed) raising interest rates – the central bank has hiked rates twice this year, with two more raises likely later in 2018.

Why should I care?

For markets: The US dollar ain’t on fleek.

The US Treasury Department releases reports on the foreign exchange policies of its major trading partners, like China and Europe – both of which have, so far, not been named as currency manipulators. Plus, Chinese officials have said that the country won’t use its currency as arsenal. Despite this, the dollar fell in value against the yuan and the euro.

The bigger picture: Separation anxiety.

The Fed operates independently from the president (despite the president appointing some of its members), so its rate-hiking plans shouldn’t change. US presidents have rarely criticized the Fed in recent decades – its separation from politics has been seen as important for economic stability. However, President Trump’s comments spooked markets and the resulting dollar decline gave emerging markets some relief (as their US-dollar-denominated debts got cheaper). Emerging market economies usually move in sync – and they’ve been struggling in recent weeks as concerns over Turkey sparked a global sell-off.

Originally posted as part of the Finimize daily email.

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