Weak Dollar May Help Reduce U.S. Trade Deficit, FX Concepts' Taylor Says

The U.S. is correct in pursuing a weak-dollar policy because of the need to fix the nation’s trade deficit, according to John Taylor, founder of FX Concepts LLC, the world’s biggest foreign-exchange hedge fund.

“It’s important for the U.S. to try to straighten out its trade balance and it’s interesting, though, that a the weak dollar may not be enough to help,” Taylor said in an interview on Bloomberg Television’s “In The Loop” with Betty Liu.

The Federal Reserve said Nov. 3 it would purchase an additional $600 billion in government debt to spur inflation and growth, while the extra liquidity is forecast to debase the currency. A weaker dollar makes U.S. exporters’ overseas sales more price attractive to foreign buyers, which would help reduce the trade deficit.

Taylor, 76, said the U.S. deficit is heavily influenced by its gap with China, which is linked to currency imbalances.

U.S. President Barack Obama and his Chinese counterpart Hu Jintao spent “the bulk” of an 80-minute meeting in Seoul discussing to exchange rates before sitting down with other leaders to begin their Group of 20 summit tonight.

China’s record $28 billion trade surplus with the U.S. in August heightened criticism its government maintains an unfair cap on yuan appreciation to the detriment of U.S. businesses. Obama, who has pledged to double exports within five years, has sought to broaden the currency debate by linking it to a worldwide effort to rein in current-account imbalances.

Last month Taylor said the dollar will remain weak against the euro through November until the effect of the Fed’s bond- buying program deteriorates. Today, he recommended selling the euro because of internal problems in Europe.

The dollar touched a low of $1.42.82 Nov.4 before rebounding 3.5 percent to trade as strong as $1.3685 today. The euro is going to slide faster than the dollar did, Taylor said.

“I’d sell the euro reason for that has nothing to do with currency wars, but has to do with what’s going on inside Europe,” New York-based Taylor said.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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