The Daily Prophet: 'Ultimately' Is Now for the Currency Market
A day after his Treasury Secretary tanked the dollar by commenting that a weaker currency is good for the U.S. economy, President Donald Trump sought to make things right by saying the remarks were taken out of context. In fact, Trump told CNBC, "ultimately I would like to see a strong dollar."
No matter that a strong dollar would be a headwind to Trump's efforts to cut the U.S. trade deficit and that "ultimately" is a vague time frame, currency traders decided it was time to stop beating up on the greenback. The Bloomberg Dollar Spot Index reversed a decline of as much as 0.77 percent to gain 0.15 percent. Whether this marks a reversal in the dollar after it fell 11.6 percent against a basket of major peers since the start of 2017 through Wednesday remains to be seen, especially since it was only a year ago that Trump said the currency was too strong and "it's killing us." Perhaps that's a reason why despite Trump's comments, the Bloomberg Dollar Index only recovered about half its Steven Mnuchin-induced losses.
The U.S. currency was falling hard for most of the day as European Central Bank President Mario Draghi sent the euro higher by expressing the conviction that euro-area inflation will accelerate even as he hinted that the shared currency's recent strength bears watching. “The ECB’s moderate tone on the exchange rate might be interpreted as a green light for the currency to rise further,” Bill Adams, an economist at PNC Financial Services Group, told Bloomberg News.
CAREFUL WHAT YOU WISH FOR
For all of Trump's tweets about how the big gains in the stock market are due to his policy, equities traders didn't like what he had to say about the dollar. The S&P 500 Index erased its gains and ended little changed, showing just how much the rally might be due to the dollar's decline. (The narrower Dow Jones Industrial Average rose 0.54 percent while the Nasdaq Compsoite Index was flat.) A weaker currency helps exporters by making their goods more competitive in foreign markets. Just consider Caterpillar Inc., which sends its signature yellow mining and construction machines all around the world. On Thursday, the company projected higher 2018 earnings than analysts estimated. Nevertheless, its shares spent the day little changed to lower on the rising prospect of what a William Blair analyst called a trade and currency war. In a telephone interview with Bloomberg News, Caterpillar Chief Financial Officer Brad Halverson said the company is concerned that the Trump administration’s policies will ignite a trade war but it is worried they could push up the cost of steel used to build its equipment. “If we have a significant price increase, that would put us at a competitive disadvantage," he said.