US President Donald Trump had a problem – from his own point of view: he was too good and that made the dollar too strong. That is at least how he presented it in an interview on 12th April: “I must be honest with you, I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me.” Well, Trump has solved at least this specific problem. The (ICE’s) dollar index (DXY) has retraced any gains that were recorded since the US Presidential elections and is trading at the levels seen at the end of October 2016. The last bit of the “Trump dollar” has disappeared.
… Now everyone (regardless of their political convictions) is worried that this President (a) cannot be expected to present a coherent political programme and that (b) he may also constitute a considerable political risk. That is why we are seeing the current dollar weakness and that is why there is a flight into safe currency havens which have pushed USD-JPY below the 112.50 mark and caused EUR-CHF to ease back to the low 1.09 area again.
Which leads us to the question as to how much further this USD weakness can go? We can neither assume that the constant flow of scandalous news will end nor that the President’s twitter deluge (which reinforces these scandals with somnambulistic confidence) will ease. However, we are likely to see everyone getting used to this kind of news flow to some extent – so that the USD negative momentum will ease. Of course it is also true: it is always possible that the chaos we are seeing in Washington will jump to a new quality. Certainly if the blind support of the Republican majority in Congress for their President started to crumble. That means that at present the risk of any USD positions is difficult to quantify in a rational manner.