The U.S. dollar has continued its freefall, with September 18th U.S. Dollar Index Futures (DXU8) plunging nearly two percent over the past one week to touch a two-week low of 94.99 after Trump lashed out at the Fed again on Monday, saying he was not thrilled with constant interest rate hikes and telling the Fed it should “do what's good for the country”.
The comments come just weeks before the Fed meets again to deliberate on rates.
The central bank has hiked rates five times ever since Trump took office and twice under Jerome Powell’s watch as chair. Traders expect two more hikes before year-end.
The dollar has also lost plenty of ground against the euro and the pound since Trump accused Europe of manipulating the regional currency.
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Trump Manipulating the dollar?
Trump’s comments about an overly strong dollar can exert a powerful influence over the markets.
The latest remarks have pounded the dollar due to investor expectations that future rate hikes might come at a more subdued rate. Related: American Dream In Jeopardy As Student Loan Defaults Soar
With a strong job market and impressive economic growth, the Fed has deemed it necessary to push up rates from historic lows so as to mop up excess liquidity after its trillion-dollar QE experiment flooded the financial system with cheap money.
A curious pattern has emerged lately whereby Trump appears willing to take down the dollar a notch or two through comments such as these whenever it starts looking too brawny.
Exactly 30 days ago, Trump criticized the Fed for its penchant to hike rates and Beijing for allowing the yuan to “drop like a rock”. The greenback followed a similar trajectory by reversing earlier gains, though the weakness was short-lived.
The dollar has fallen every time Trump has made similar comments in the past.
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Source: The Guardian
That said, it’s highly unorthodox for U.S. presidents to openly criticize Fed chairs since they are supposed to be independent. Lindsey Piegza, chief economist at Stifel, has warned that these types of comments can be perceived as a direct threat to the Fed’s autonomy.
There’s a chance that the market will finally come around to Trump’s frequent bashing of the Fed and future comments won’t have the desired effect.
Commodities Climb as Dollar Falls
Many commodity traders are probably not complaining after Trump’s latest round of kvetching. Gold, silver, platinum, palladium and WTI/Brent crude are all moving higher. That’s due to the fact that dollar-denominated commodities tend to climb whenever the dollar falls and vice-versa, ceteris paribus.
December gold futures (GCZ8) have rallied around $32, or 2.6 percent, from their one-week low to an eight-day high of $1,202.70. Spot gold prices have risen by a smaller margin of $30, or 2.5 percent, to settle at $1,196.11 over the timeframe.
A weaker dollar generally boosts gold prices, with the inverse relationship between the pair appearing particularly strong over the past couple of months.
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Gold though tends to be highly sensitive to rising U.S. rates, depressing prices for the non-yielding metal, while boosting the dollar. Metal prices could therefore suffer in the near-term if the Fed announces another hike come September.
Other commodities have been benefitting, too. Platinum has climbed 0.3 percent on Wednesday to trade at $796 per ounce, slightly below its one-week high of $803.10. Spot silver is up 0.4 percent at $14.77 an ounce while palladium has edged up 0.5 percent on the day at $915.10.
Markets are also focused on a U.S.-China trade meeting this week, though Trump has said he does not expect much to come from talks with Beijing.
By Alex Kimani for Safehaven.com
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