jueves, 27 de julio de 2017

jueves, julio 27, 2017

Donald Trump is winning the currency cold war: Pimco

By  WILLIAM WATTS
DEPUTY MARKETS EDITOR



Donald Trump can’t point to much in the way of legislative victories over his first six months in office, but he might have something to crow about when it comes to a weaker U.S. dollar.

“Much of the world has been waging a cold currency war since the autumn of 2016, and so far the winner is Donald Trump,” wrote Joachim Fels, global economic adviser for asset manager Pimco, in a Wednesday blog post.

Trump regularly charged during the presidential campaign that other countries were taking advantage of the U.S. by manipulating their currencies, leaving U.S. exporters to suffer from an overvalued dollar. The Trump administration hasn’t followed through on a campaign pledge to declare China a currency manipulator, but has continued to at least talk tough on trade-related issues.

The dollar has weakened against major rivals in 2017, leaving the ICE U.S. dollar index DXY, -0.59% , a measure of the U.S. unit against a basket of six major rivals, down nearly 8% year-to-date. The dollar is down more than 4% versus the Japanese yen USDJPY, -0.61% , while a surging euro EURUSD, +0.7040% has risen more than 10% against the U.S. unit this year.

“While the U.S. administration and the Republican majority in Congress are yet to deliver on most of their policy goals, they have succeeded in making the dollar more competitive. How? By putting an end to the decadeslong official mantra that ‘a strong dollar is in our interest’ and by threatening other nations, implicitly and sometimes explicitly, with protectionist policies,” Fels wrote. “ In short, all this trade bullying has killed the dollar bull.”

Indeed, as MarketWatch wrote in January, Trump’s abandonment of the strong dollar mantra was seen as an important signal, even if a strong dollar policy had often received little more than lip service from previous U.S. administrations.

Fels argued last December that a currency cold war had taken hold in the second half of 2015 as the European Central Bank, the Bank of Japan, and the People’s Bank of China took “guarded actions” that contributed to the depreciation of their currencies versus the dollar.

Things started to shift earlier this year, he said, with China fixing its yuan stronger versus the dollar, the ECB signaling it is slowly moving toward winding down its own extraordinary monetary stimulus, and the Bank of Japan leaving policy on hold.

With the dollar sinking in response, “the Trump administration has had no reason to turn aggressively protectionist. Mission accomplished,” Fels said.

Of course, it could be argued that the dollar weakness has relatively little to do with Trump.

The ECB, for example, is seen responding to signs of improving economic growth and a number of other factors rather than complaints by administration officials over the value of the euro.

But a weaker dollar—and a stronger euro and yen—is a headache for the ECB and BOJ as they struggle to boost inflation. And Trump’s stance adds another layer of difficulty.

“Outright intervention in the [foreign exchange] market is a no-go as it would likely spark protectionist retaliation by the U.S. administration,” Fels wrote.

That means it would likely take an unexpectedly hawkish turn by the Fed or sudden progress toward implementing the administration’s agenda of aggressive tax cuts to turn the tide for the dollar. Both remain unlikely, Fels said.

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