The US Dollar is under the most severe spotlight since Donald Trump’s inflammatory recent remarks. He is attempting to publicly shame specific companies into moving their manufacturing jobs back to the US. This statement alone has re-sparked trade worries that have even more greatly affected the currency’s strength. As it stands now, the US doesn’t even produce smartphones in the US, making this provision an added insult to injury in the trade arena. These climate-related developments have struck a blow to the Greenback. Consequently, it has broken its four-week winning streak and dropped to new three-week lows.
In the wake of these developments, analysts believe that the US Dollar Index (DXY) will continue to have a bearish outlook. It remains below the key Simple Moving Averages (SMAs) of 104.16 and 102.87 for 200 days and weeks respectively. This trend is indicative of real fears about inflation and the state of the economy, fears that are evident in comments from Federal Reserve Board members.
Impact of President Trump’s Remarks
These latest comments from President Trump are part of his broader campaign to push US companies to bring their manufacturing back to the United States. This strategy parallels his administration’s overall approach to reengage the federal government’s historic focus on revitalizing American manufacturing sectors. As the absence of domestic smartphone production shows, the obstacles to realizing this ambition may be formidable. We understand that the realities of global supply chains bring in tremendous complexities and challenges. The economic conditions of overseas production make a rapid transition to domestic production difficult.
These comments have incited a robust debate about trade. They have brought about immediate consequences for the US Dollar. The currency was hit with another wave of selling pressure, eventually resulting in a decline to three-week lows. Many analysts agree that this bearish move was heavily influenced by pre-existing fears surrounding tariffs and ongoing trade talks with China.
The Fluctuating Dollar Index
Despite the recent volatility in the US Dollar Index (DXY), a larger long term trend is at play that will determine how well the DXY performs. Having bounced back from an unprecedented fall of around 9% in late March and April, the Greenback found itself on shaky ground once again. That swift rebound was fueled by an unexpected – and temporary – 90-day US-China trade truce. At the time, this agreement raised hopes that it would help to calm growing tensions over international trade relations.
Yet in the aftermath of President Trump’s retorts DXY shuddered to a three-week low below 99.00. According to analysts, this instability could last as long as the index trades below its important moving averages. Further adding to the bearish sentiment for the currency is the persistent trade policy or tariff uncertainty that hangs like a dark cloud.
Federal Reserve’s Cautious Stance
The Federal Reserve has understandably taken a wait-and-see approach given recent economic volatility and trade uncertainty. Fed rate setters have expressed vigilance regarding interest rate paths, citing persistent concerns about inflation and the overall economic environment. As stated by New York Fed President John Williams, higher interest rates are intentionally set to dampen economic uncertainty.
Additionally, several other Fed officials think there is still space for interest rate reductions this year. And Fed Governor Christopher Waller has suggested that isn’t off the table. The latter, of course, indicates a readiness to meet evolving economic challenges. Meanwhile, other officials like Beth Hammack from the Cleveland Fed and Mary Daly from San Francisco have advocated for postponing future policy moves until clearer resolutions emerge regarding trade difficulties.
Raphael Bostic, the current president of the Atlanta Fed, has been outspoken about what equity looks like in practice. He recommends that the Fed only cuts rates by 25 basis points this year if at all. Fed officials are understandably whistling through an economic graveyard. They’re walking a fine line between inflationary pressures and an ambitious, still-ongoing trade negotiation, indicative of split feelings amongst them.