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Robert Burgess

Trump Better Start Liking a Strong Dollar, and Fast

A borrower's case for the greenback leads market commentary.

Greenbacks, hot off the press and ready for the Treasury auction. 

Greenbacks, hot off the press and ready for the Treasury auction. 

Photographer: Andrew Harrer/Bloomberg

President Donald Trump told CNBC in January that "ultimately I would like to see a strong dollar." Nobody really believed that, since Trump said a year earlier that the greenback was too strong and "it's killing us." The truth is, a weaker dollar would go a long way toward narrowing the chronic trade deficit – something Trump obsesses over — by making U.S. goods less expensive overseas.

But someone needs to explain to Trump that at this point in time, the upside to a stronger dollar outweighs the downside. Consider that foreign investors own about half the U.S. debt outstanding. In effect, those investors are lending to the U.S. so the government can finance the budget deficit. That's not insignificant. The recent lost revenue from tax reform means the Treasury Department will need to more than double debt sales this year to $1 trillion to make up for the shortfall. Foreign investors would be more likely to buy U.S. debt if they were confident that the White House really was in favor of a strong dollar, making their holdings more valuable over time. If they aren't, then they could back away from U.S. securities, potentially causing borrowing costs for the government, companies and consumers to rise. Some of those doubts were probably on display Tuesday at the Treasury's monthly auction of two-year notes. The amount sold – $33 billion– was the most for that maturity since 2013, while a class of bidders that includes foreign investors purchased just 39.3 percent of the offering, their smallest share since 2016. The rate on the notes was the highest since July 2008.