It seems there’s only so much turmoil at the White House markets can take. Now, President Trump’s self-inflicted crisis is starting to leave its mark, almost wiping out the dollar’s post-election rally.
The dollar has reversed its upward course against the yen, which had been in train since mid-April, sinking now to Y112.30, a 0.7 per cent decline on the day. The euro is up at over $1.11. The dollar index, a broad measure of its strength against a basket of other currencies, has declined to 97.93, all but wiping out the rally it made after Mr Trump was first elected.
German bank Commerzbank has today issued what it calls “an obituary” to the “Trump dollar”. Ulrich Leuchtmann at the bank writes:
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.
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.
We can not assume that the constant flow of scandalous news will end. However, we are likely to see everyone getting used to this kind of news flow to some extent – so that the dollar-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. That means that at present the risk of any dollar positions is difficult to quantify in a rational manner.
The I-word (whisper it: impeachment) is starting to surface, but regardless of whether that’s a serious prospect at this point, investors are, reasonably enough, concerned that Trump’s body blows will distract him from other aspects of his promised agenda. Paul Donovan at UBS notes:
If Washington is focusing on the Russian question, security or presidential behavior, then Washington is not looking at legislation on tax, trade, or Trumpcare II.
Citi also notes that it’s just hard to remain a fan of the dollar in this environment, dubbing the latest flurry of news over former FBI director James Comey as “James and the Giant Impeachment”.
At best, the press is making mountains out of molehills, and the ongoing scandals in Washington DC may lead to slight delays in reforms for healthcare, tax reform, deregulation, trade etc. At worst, we cannot remove the possibility of impeachment… While that is the case, the dollar will likely look unattractive.