Dollar’s rally was took to a halt by Trump’s verbal interference on Fed’s policies. Trump criticized in a CNBC interview that “I don’t like all of this work that we’re putting into the economy and then I see rates going up.” And he complained that “because we go up and every time you go up they want to raise rates again … I am not happy about it.” Trump also added Fed’s rate hikes and strength of US Dollar are putting the US at a disadvantage. Though, he added that “at the same time I’m letting them do what they feel is best” and Fed chair Jerome Powell is a “very good man”.
There are criticism on Trump’s comments as being intervention on Fed’s independence. But so far, Powell has given enough confidence to the market of carrying out his job in a “strictly nonpolitical way”. What matters most to some economists is that Trump’s comments just do not make sense. The US economy is on course for near 4% GDP growth in Q2, lowest jobless claims in nearly 50 years and inflation at around target. The strength of Dollar is merely reflecting strong fundamentals.
And remember that Trump’s top economic adviser Larry Kudlow just said earlier this week that “it’s possible that a real growth cycle is in front of us for the next four, five or six years.” And, Kudlow added that “there’s no recession in sight.” So, is it time to remove monetary policy accommodation to, at least, bring interest rate back to “neutral’ level?
Dollar index edged through 95.53 resistance to 95.65 yesterday but quickly retreated. The rise from 88.25 should be resuming but momentum is no convincing yet. As long as 93.71 support holds, we’d expect further rally to 61.8% retracement of 103.82 to 88.25 at 97.87. However, a break of 93.71 will indicate a deeper and lengthier correction is underway.
