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Trump Warns Europe and China Against Currency Manipulation

NEW YORK – The United States has not intervened in foreign exchange markets since 2011, but this could change under the chairmanship of Donald Trump, Bloomberg reported Thursday.
The latest accusation of US President Donald Trump of monetary manipulation has led the foreign exchange analysts to prepare the next move of the administration.
Trump tweeted Wednesday that Europe and China were playing a “big game of money manipulation” a few days after his ceasefire declaration with Chinese leader Xi Jinping.
For market watchers, the president seemed to suggest going beyond simple jawboning. His call for “MATCH, or continue to be the models who sit idly by and watch politely other countries continue to play their games” has prompted strategists to consider the possibility of intervention by the US Treasury to weaken the dollar.
The United States has not intervened in foreign exchange markets since 2011, when they strengthened the dollar as part of an international effort after the rise of the yen following Japan’s devastating earthquake this year.
But with Trump’s repeated complaints about the strength of the dollar – even after the US refrained from formally qualifying China as a currency maker at the end of May – everything is on the table, according to the Canadian Bank Imperial Trade.
The obsession with currency manipulation – a month after the release of the latest Treasury report – had come to different conclusions – we must be ready for anything, said Bipan Rai, head of CIBC’s foreign exchange strategy North America. The Treasury has not stepped in to weaken the dollar for decades, but we would not be surprised if this potentially changes under Trump.”
The Euro hit the top of the day on Trump’s tweet Wednesday before retiring.
The latest missive failed to shake the offshore yuan, which hardly changed nearly 6.88 to the dollar.
The Bloomberg Dollar Spot Index is down about 0.5% this year, after a gain of 3.2% in 2018. However, using a trade-weighted measure from the Federal Reserve, the dollar is not much lower than the peak since 2002, threatening to make US exports less competitive abroad.
The risk of intervention increases if the Fed decides not to relax its policy at its meeting this month, said Rai. Trump has run a campaign against Fed President Jerome Powell in recent months, comparing the central bank to a “stubborn child” last month for not lowering rates.
Trump could step up its efforts as other major central banks begin to relax, said Anthony Doyle, global cross-asset specialist at Fidelity International.
I would not be surprised that jawboning is going up in the coming months, Doyle said in an interview with Bloomberg Television.
“Generating inflationary pressures, generating competitiveness through a lower currency is a tool that central banks can use to support their economies – it’s the only game in town at the moment.”
Even if the Fed lowers rates in a few weeks – a decision that bond traders generally expect – this may not be enough for the president, according to Bank of America Corp.
The president is likely to get by at least for the moment, foreign exchange strategist Ben Randol told reporters.
However, the problem arises if the out performance of the US economy continues and the dollar resists accordingly, he said. In this case, the temptation to intervene in the foreign exchange markets will increase if the Fed cuts do not do the trick.
(Sahar News Monitoring Desk)

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