Always lovely when the world humbles you.
A few months ago...
the consensus was that Donald Trump’s presidency would boost the outperformance of American stocks, raise Treasury yields and strengthen the dollar. So far this year, all three bets are deep in the red
oops.
"it is the weakening of the dollar that has shocked the most."
it is reasonable to worry that as Mr Trump pulls up the drawbridge, the dollar’s role in the global financial system is in danger. America’s rivals and allies alike have long sought alternatives that are beyond Uncle Sam’s reach, whether by developing new payment rails or agreeing to invoice trade in other currencies. Mr Trump’s past aggressive use of sanctions, for instance, against Iran in 2018 after blowing up a nuclear deal, make such endeavours all the more urgent. Perhaps, you might fret, the dollar’s present weakness is a sign that it is being dethroned.
A KID CAN DREAM!
Implications:
- American consumers will suffer more than expected (tariff costs borne further by consumers ("Americans buying imports will now have to pay the costs of both heavier duties and a weaker currency.")
- Foreign investors, owning American assets "are getting whacked." Negative wealth/return effect where the dollar "exacerbating losses from falling share prices."
- [Silver lining?]: "a weaker dollar ought to cushion some of the damage to global economic growth from Mr Trump’s protectionism"
A mighty greenback slows growth by inhibiting global trade, some 40% of which is invoiced in dollars and which therefore gets more expensive when measured in other currencies. It also puts a squeeze on countries and firms that borrow in dollars, as in many emerging markets, by raising their debt-servicing costs in local currency.
The piece doesn't really worry about the weakened dollar as much as explain it. Perhaps the bottom line counts: Should Trump success in "dismantl[ing] global trade... the resulting turmoil would be likely to strengthen the dollar again—and for all the wrong reasons."
non-paywalled: https://archive.md/oGNEK