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Trump’s first two weeks bring mixed messages for the Dollar

By HiFX   /     Feb 09, 2017  /     Market Updates  /     , , , , , , , , , ,

Since the days of Franklin D. Roosevelt, the first hundred days of a US president’s first term have been closely scrutinised by the press and the markets. This period can be crucial in setting the tone of an overall presidency and determining how successful the incoming president is likely to be. This is because, during their honeymoon period, presidents tend to have the strongest influence on Congress and so this is when they are best positioned to pursue their agenda through bills, executive orders and revoking the previous president’s executive orders.

Trump has certainly embraced this tradition and made a number of promises for his first hundred days in office. CNBC has summarised these promises as:

• Appoint judges “who will uphold the Constitution” and “defend the Second Amendment.”
• Build a wall on the southern border and restrict immigration “to give unemployed Americans an opportunity to fill good-paying jobs.”
• “Stand up to countries that cheat on trade, of which there are many” and crack down on companies “that send jobs overseas.”
• “Repeal and replace job-killing Obamacare – it is a disaster.”
• Lift federal restrictions on energy production.

There are also a couple of areas that have been discussed, such as investing in infrastructure and loosening financial regulations. These are the policies that were popular with markets and are likely to explain why the Dollar strengthened when Donald Trump was elected.

However, in his first couple of weeks in office, the markets have had a mixed reaction to Donald Trump’s presidency:

gbpusd-20012017

View GBP to USD exchange rates on XE.com

We’ve taken a look at some of the key aspects from Trump’s first two weeks as US president and how they have affected the Dollar so far.

Muted market reaction to executive orders

Trump appears to be doing his best to keep his big promises about his first hundred days, issuing 22 executive actions (including executive orders, presidential memoranda and proclamations) in his first two weeks. These covered a wide range of issues, including healthcare, immigration, energy, regulation and his key election promise to build a wall with Mexico.

Some of these have been generally well-received by the markets, particularly his focus on deregulation. For example, his plans to review financial regulations could help to boost the US economy and ensure US companies are more competitive at a global level.

Others have been less positively viewed, particularly where they reflect the protectionist approach that is a potential concern to investors. The most notable of these is his controversial travel ban, temporarily restricting travel from seven predominantly Muslim countries. A number of business leaders were critical of the policy and its potential impact on their current and future employees. As a result, there was a small drop in the value of the Dollar. His withdrawal from the Trans-Pacific Partnership and his plans to build a wall with Mexico are also potentially a concern for investors.

But while some of these executive orders have dominated headlines, they have generally not appeared to have a major impact on the currency markets. This could be because these executive orders are limited in scope and subject to judicial review. A greater measure of Trump’s power is likely to be when he starts trying to pass legislation in Congress, where the Republicans only hold a small majority. It will take much longer to determine how successful he will be in this area.

Trump’s unconventional approach to the Dollar

Trump’s major and most direct influence on the currency markets so far has been in his recent comments on the Dollar and other global currencies.

Trump, unusually for a US president, has commented in the past that a weak Dollar is beneficial for the USA, because it enables US companies to be more competitive on a global stage. He re-iterated these comments shortly before his inauguration and suggested the Chinese government was deliberately de-valuing their currency. This was followed by comments from one of Trump’s senior advisors, Peter Navarro, at the end of January suggesting that Germany is weakening the Euro for its own benefit.

These comments are considered to be a contributing factor to the Dollar having its worst January in 30 years. They have also led to a request by Germany to discuss currencies in next month’s G20 meeting, where they are keen to reaffirm the group’s commitment to resisting currency wars.

What does this mean for your money?

At this point, it remains uncertain which direction Trump’s presidency is likely to drive the Dollar. Markets seem to be unsure how to reconcile Trump’s policies that could be good for the Dollar, such as investment and deregulation, with his more isolationist and protectionist policies regarding international trade. This confusion has potentially been compounded by mixed messages from Trump’s administration and allegedly from Trump himself about the Dollar. This means that we are likely to continue seeing volatility in the global currency markets.

It is also important to remember that currencies work on ratios. So while Donald Trump’s actions may be a significant contributing factor, there are other events around the world that could influence exchange rates. In the UK, Brexit continues to create uncertainty, while in Europe there are a number of political events that could cause concern to the currency markets. All of these events have the potential to strengthen or weaken other global currencies.

But whatever happens next, HiFX has a range of options to help you make your money go further and ensure peace of mind against currency fluctuations. We provide a range of tools and services to help our customers manage their money and to support businesses as they look to minimise the risk of foreign exchange volatility on their bottom line.

If you’d like to find out more about how we can help you, please contact us.

 

The details expressed in this transmission and accompanying documents are for information purposes only and are not intended as a solicitation for funds or a recommendation to trade. HiFX Europe Limited accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the above information. HiFX Europe Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, registration 462444, for the provision of payment services. HiFX Europe Limited is a registered MSB with HM Revenue & Customs – Reg No: 12131222. HiFX is a limited company registered in England and Wales. Registered number: 3517451. Registered office: Maxis 1, Western Road, Bracknell, Berkshire, RG12 1RT

 

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