Trump Doesn’t Understand Currency Wars, Either

© Reuters.  Trump Doesn’t Understand Currency Wars, Either © Reuters. Trump Doesn’t Understand Currency Wars, Either

(Bloomberg Opinion) — What a difference a decade makes. Back in September 2010, Guido Mantega, Brazil’s then-finance minister, was complaining bitterly about “currency wars,” and claiming the Federal Reserve’s ultra-loose monetary policy of the time was unfairly hurting his economy. “We’re in the midst of an international currency war, a general weakening of currency,” he said then. “This threatens us because it takes away our competitiveness.” 

Fast forward to December 2019, and we have President Donald Trump’s latest furious denunciation of exactly the same thing — only this time, he says that Brazil (as well as Argentina) is being unfair. In his latest tweet heard around the world, he said: “Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers.”

After announcing the imposition of tariffs on Brazilian and Argentine steel, he went on to attack the Fed. He wants the central bank to return to the behavior that so annoyed Mantega a decade ago: “The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen – Fed!”

If Mantega’s complaints look dumb in retrospect, Trump’s latest broadside looks even dumber. Mantega’s complaint came when Brazil’s economy was surging on the back of strong commodity prices (which themselves were driven by the voracious manufacturing appetite of China). The strong Brazilian real hadn’t stopped the country’s economy from going on a great run. In the subsequent decade, the U.S. far outstripped Brazil’s growth, despite a steadily strengthening dollar:

Currency values matter greatly to competitiveness, of course, and central banks can use interest rates to manipulate them. But the arrow of causation also works in the other direction. A weak economy will lead to a weak currency, and vice versa. That is the story of the U.S. dollar and the Brazilian real over the last decade.

The weak dollar in 2010 was a product of the weakness of the U.S. economy. Low rates and quantitative easing were deemed necessary to keep the economy ticking over, and allow the country to clear its debts. Outright deflation appeared a real risk. Higher rates from the Fed at that point might have weakened the real, but they might also have stopped U.S. economic growth in its tracks — which would have been very bad news for Brazil. 

Is Brazil manipulating its currency lower? Not at all. Its central bank’s target rate, the Selic, is very low at present, by Brazilian standards, but only because inflation is at its lowest this century:

Further, as the country’s use of dollar-denominated debt has increased over the last decade, a weak real makes interest payments more expensive and increases the risk of a crisis.

No country knows this better than Argentina, which has suffered several epic crises of devaluation and default in living memory, and where voters have just kicked out a president, Mauricio Macri, in large part for failing to tame inflation. Macri failed to stop further sharp devaluations of the Argentine peso, despite massive overnight rates of more than 50%. Another disadvantage of a weak currency is inflation, and Argentines know all about that. It too is currently running at more than 50%. Any implication that Argentina is deliberately weakening its currency for competitive advantage is beyond absurdity. 

In the long run, the currency war has had only one winner. GDP per capita in both Brazil and Argentina is less than a quarter that of the U.S. And both countries have fallen further behind, even as their currencies have weakened. 

Why, then, is Trump choosing to open a new front in the trade war, on two countries that currently have little or no ability to harm the U.S.? It is possible that he is being “crazy like a fox,” and trying to convince people that he is capable of anything. Such a strategy, the argument goes, might convince China of the need to do what he wants. The risk with such a strategy is to give the appearance that he has no understanding of how the economy works. And thus the more likely explanation for his behavior is that he truly doesn’t understand what he is doing. 

Meanwhile, Brazil and Argentina have shown the U.S. the best way to weaken a currency. If your economy slows down, the chances are that your currency will get cheaper. That is what has happened over the last decade to the big economies of South America. And in the much shorter term, the sharp sell-off in the dollar on Monday in response to disappointing data on manufacturing suggests that the president should be careful what he wishes for. Today’s weak Brazilian real appears to be exactly what Guido Mantega wished for back in 2010 — but nobody in Brazil could possibly have wished for the disastrous decade that made that weak currency possible. 

Let’s block ads! (Why?)

Forex News

If you are Japan’s top dog currency intervention guy, this is your next job

In Japan its the Ministry of Finance that orders (or not) currency intervention.

Japan’s Finance Ministry’s Vice Finance Minister for International Affairs is the guy (its normally a guy, yeah) who will instruct the BOJ to intervene, when he judges it necessary. Often referred to as Japan’s ‘top currency diplomat’.

Anyway, at the moment its Masatsugu Asakawa:

In Japan its the Ministry of Finance that orders (or not) currency intervention.

Who has just been nominated as next head of Asian Development Bank.

But, get this … the current head of the ADB is Takehiko Nakao, who was a previous ‘top currency diplomat’. 

Peculiar. 

ForexLive

Let’s block ads! (Why?)

Forexlive RSS Breaking news feed

Wait … Trump Admin have been discussing a currency transaction tax that could weaken the dollar

US media with a piece on policy options being canvassed in the White House

Via Washington Post:

  • Top White House advisers notified President Trump earlier this month that some internal forecasts showed that the economy could slow markedly over the next year
  • Administration officials have scrambled this week to assemble a menu of actions Trump could take to avert an economic downturn. Few aides have a firm sense of what steps he would seriously consider, in part because he keeps changing his mind.
  • Ideas that have been discussed include imposing a currency transaction tax that could weaken the dollar and make U.S. exports more competitive; creating a rotation among the Federal Reserve governors that would make it easier to check the power of Chair Jerome H. Powell … pushing to lower the corporate tax rate to 15 percent in an effort to spur more investment. 
US media with a piece on policy options being canvassed in the White HousePreparing the next policy initiative

ForexLive

Let’s block ads! (Why?)

Forexlive RSS Breaking news feed

RBA’s Kent Says Rate Cuts, Currency Drop Are Providing Stimulus

(Bloomberg) — Australia’s back-to-back interest-rate cuts are flowing through the financial system and into the economy, while the falling currency should provide a similar stimulus to sustained declines of previous years, a senior Reserve Bank official said.

“The transmission of monetary policy in Australia to financial conditions is working in the usual way,” Christopher Kent, assistant governor for financial markets, said in Sydney Tuesday. “In particular, the change in the stance of policy has underpinned the decline in risk-free rates along the yield curve. It has also contributed to a decline in the cost of funding in corporate bond markets, supported equity prices, and lowered the cost of funding for banks.”

Kent also said in his speech to the Finance & Treasury Association that much of the reduction in banks’ funding costs has been passed through to business and household borrowers. The cash rate currently stands at 1%, with traders pricing in another quarter-point cut this year and a further one in 2020.

Kent noted that a spike in commodity prices over the past year had impacted the currency less than in the past, due to expectations that the supply-driven gains were likely to be short-lived. He estimated that, in trade-weighted terms, the dollar was down about 7% over the past year; it was trading at 67.57 U.S. cents at 10:52 a.m. in Sydney, near the lowest level since 2009.

Some Support

“Notwithstanding an easier stance of monetary policy globally, the decline in interest rates in Australia has contributed to the depreciation of the Australian dollar,” he said. “That broad-based easing in financial conditions in Australia will provide some additional support to demand in the period ahead.”

Asked after the address whether the currency would deliver the same impetus to the economy as on previous occasions, given changes in the industrial base, Kent was categorical in his response: “Absolutely.”

“Education and tourism benefit just as much through a depreciation in terms of their competitiveness as any other industries which are no longer so prominent,” he said. “So yes I think it’s going to have about the same sort of effect in terms of the stimulus.”

Kent was also asked whether the central bank’s focus was still inflation or perhaps unemployment or even under-employment now. He reiterated the bank’s line that there was more spare capacity in the economy than had been anticipated, as strong hiring had been met by a “substantial increase” in the participation rate.

“We’re certainly not unemployment rate targeters, we still are inflation targeters,” he said. “But it’s a dual mandate, we care about inflation, we care about full employment. We care about the general welfare of the populace.”

(Updates with Q&A currency comments from first paragraph.)

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Let’s block ads! (Why?)

Forex News

China’s Yuan Fix Is Unmissable These Days for Currency Traders

(Bloomberg) — China’s central bank is under pressure to issue its weakest currency fixing in more than a decade, a move that risks spurring more losses in the yuan.

The People’s Bank of China set its daily currency reference rate only marginally stronger than 7 a dollar on Wednesday. That leaves it little headroom if it wants to track the spot rate, which fell 0.3% to 7.0463. While the yuan breached the key 7 level this week for the first time since May 2008, the fixing hasn’t.

At stake is the risk that markets will see Thursday’s reference rate as a signal on policy, as a string of fixings on the weaker side of 7 could exacerbate concerns around further yuan depreciation and capital flight. The central bank has already taken some steps this week to limit declines after the yuan sank the most in four years, including reassuring foreign companies that the currency won’t weaken significantly.

“Policy makers’ priority now is to limit the risks of capital outflows,” said Xing Zhaopeng, a markets economist at ANZ Bank China Co. He expects the PBOC will keep the rate stronger than 7 to maintain stability.

The fixing is published every trading day at 9:15 a.m., after a group of 14 lenders submit their rates. The yuan is then allowed to move 2% in either direction. The rates are calculated with formulas that take into account factors such as the previous day’s official close at 4:30 p.m, the yuan’s move against a basket of currencies and the moves in other major exchange rates.

The mechanism has been used to manage volatility after China removed the yuan’s peg to the greenback in 2005. Until at least 2015, traders weren’t able to offer prices that diverged from the fix by more than the allowed range. The last time the yuan tested the band was in February 2015, when it closed 1.99% weaker than the reference rate. The trading system was upgraded after the shock devaluation in August that year.

The yuan’s slump this week means the currency is once again taking the spotlight in China’s trade dispute with the U.S., stoking criticism Beijing is depreciating its currency to soften the impact of U.S. tariffs. Donald Trump’s administration labeled China a currency manipulator, a formal designation which may prompt counteractive measures. The PBOC rejected the accusation.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Let’s block ads! (Why?)

Forex News

Switzerland July foreign currency reserves CHF 767.9 billion vs CHF 759.1 billion prior

Latest data released by the SNB – 7 August 2019

ForexLive

Slight delay in the release by the source. A decent increase in foreign reserves but nothing out of the ordinary from recent levels thus far. Let’s see how the data progresses in the next couple of months before drawing any firm conclusions of potential SNB intervention.

Let’s block ads! (Why?)

Forexlive RSS Breaking news feed

Trump adviser says currency intervention off the table; Trump less clear

By Makini Brice and Steve Holland

WASHINGTON (Reuters) – The Trump administration has “ruled out” intervening in markets to lower the U.S. dollar’s value, even though President Donald Trump is concerned other countries are weakening their currencies to gain a trade advantage, a top White House adviser said on Friday.

“Just in the past week, we had a meeting with the president and the economic principals and we had ruled out any currency intervention,” White House economic adviser Larry Kudlow told CNBC.

White House adviser Peter Navarro, a trade hard-liner, presented Trump on Tuesday with ideas on how to devalue the dollar as a way to pressure China in an ongoing trade fight, according to a source familiar with the matter, confirming a Politico report, which said the president quickly dismissed the proposals.

Asked why he had decided not to act on them, Trump told reporters at the White House, “I didn’t say I’m not going to do something.”

Trump has publicly complained about the strength of the dollar, saying it hurts American competitiveness, but Kudlow disputed an assertion that the president wanted a weaker greenback. Rather, he said, other currencies should be stronger.

“I don’t agree with your assertion that the president wants a weak dollar,” Kudlow said. “What the president is concerned about is that foreign countries may be manipulating their own currencies lower to try to gain some short-term, temporary trade advantage.”

Kudlow told reporters later on Friday that the president wanted a steady dollar.

Trump, in his remarks to reporters, suggested he welcomed the dollar’s strength in so far as it is an emblem of a strong economy, even though it curbs U.S. exports.

“The dollar is very strong. The country is very strong,” he said. “It’s a beautiful thing in one way but it makes it hard to compete.”

“We have a very powerful dollar … It’s really become, more than ever before, the currency of choice,” Trump added, citing weakness in the euro. He also said China’s yuan was “very low.”

In a tweet on Monday, Trump complained that it was “very unfair that other countries manipulate their currencies.” He has blamed the U.S. Federal Reserve’s interest rate policy for much of the dollar’s strength and has been jawboning the central bank to cut rates at its two-day meeting next week.

“The Federal Reserve raised the rates too fast and too soon,” Trump lamented on Friday.

The central bank had been raising rates through the end of last year, and the substantial gap between U.S. borrowing costs and those in other developed economies has been seen as a contributor to the dollar’s strength. But, in response partly to what it sees as headwinds from Trump’s trade policies, the Fed is now expected to cut rates for the first time in more than a decade.

In the last 12 months, the ICE (NYSE:) () has gained about 3.5%, largely due to gains against the euro (). On Friday, the index touched the highest in two months and was less than 0.5% from its strongest levels in more than two years.

Against China’s yuan , it has risen by about 1.4% over the last 12 months, much of that coming in May after Trump raised tariff rates on billions of dollars of Chinese imports.

Let’s block ads! (Why?)

Forex News

Trump Has a Favorite Currency, and It’s Not Bitcoin

© Reuters.  Trump Has a Favorite Currency, and It’s Not Bitcoin © Reuters. Trump Has a Favorite Currency, and It’s Not Bitcoin

(Bloomberg Opinion) — When Donald Trump’s former adviser, Steve Bannon, praised last year as “disruptive populism” and revealed he was working on his own cryptocurrency, it was evidence of something many people had long suspected: The forces driving the growth of anarchic, get-rich-quick digital tokens are very similar to those buoying Trump and his imitators. Both are born out of a resentment of establishment politics and a hatred of central authorities such as the Federal Reserve.

This week, though, the U.S. president turned his back on alt-right cryptonomics with a series of tweets that made clear he has time for only one currency: The dollar.

Trump made three unusually thoughtful and concise points. One: Bitcoin and other cryptocurrencies are great for criminals and speculators, and bad for everyone else. Two: Facebook Inc (NASDAQ:).’s proposed digital token – Libra – is going to put Mark Zuckerberg’s social network under tough scrutiny by financial regulators. Three: The reigns supreme.

It will hurt Bitcoin supporters to hear it, but it looks like Trump is listening to the establishment and bringing the hammer down on potential threats to the dollar’s status as the world’s reserve currency, and with it the ability to enforce U.S. policy worldwide.

Despite repeatedly bashing Fed Chairman Jay Powell over interest rates – “way too high,” Trump groused in June – the president’s tweets echo the central banker’s views on crypto. Bitcoin is a “speculative store of value” that has failed to catch on, Powell said on Capitol Hill this week. He warned that Libra, in particular, raised serious concerns about financial stability and regulation.

Trump’s preoccupation with Facebook’s digital token is probably not whether Zuckerberg’s project conducts adequate know-your-customer and anti-money-laundering checks. For the president, it’s more likely to be a question of whether the cryptocurrency will serve American interests or undermine them. Libra’s ambition is to be a cross-border medium of exchange, effectively operating outside the banking system and catering to at least two billion users across Facebook, Instagram and WhatsApp.

Democratic Representative Maxine Waters – no friend of the president’s – frets that Libra could be a parallel system that rivals the greenback one day. It sounds more like Facebook First than Trump’s vision of “America First.”

To be fair, we already know that Libra will include currencies like the dollar in the basket of assets that backs it. We also know that the project plans to respect international sanctions, such as those re-imposed by the U.S. against Iran over its nuclear ambitions.

But Trump is laying out his stall early: If Libra is ever to hit the market with his administration’s blessing, it will have to be, as much as is possible, an extension of the U.S. dollar. If it starts to look like a vehicle to escape, or blunt, U.S. policies like sanctions or trade tariffs, the full force of those financial regulations will be felt. Remember that the one cryptocurrency actually banned by Trump is the Venezuelan petro.

The irony of all this is that the biggest probable threat to the dollar’s reserve status is Trump himself. Ray Dalio, the billionaire hedge fund founder, said last year that the dollar’s privileged position as the world’s currency was more obviously being threatened by the parlous state of the country’s finances than by digital tokens. America is “borrowing too much,” he said.

In the long run, this president may not be the dollar’s best friend.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Let’s block ads! (Why?)

Forex News

China says that it won’t engage in competitive currency devaluation

China responding to more finger-pointing by Trump overnight

In case you missed the headline overnight, Trump mentioned that “China and Europe are playing a big currency manipulation game” and urged that the US should do the same to match. This isn’t anything new and has been an ongoing ordeal since about forever now.
ForexLive

Let’s block ads! (Why?)

Forexlive RSS Breaking news feed

Forex – U.S. Dollar Falls as Trump Ramps up Currency War Talk

Investing.com – The U.S. dollar turned down Wednesday after President Donald Trump launched another broadside against the euro zone and China, accusing of them of engaging in competitive devaluations to “take advantage” of the U.S.

His comments are the clearest hint yet that the administration considers itself in a ‘currency war’ with major trading partners, something that analysts fear could deal further blows to global business confidence and trade.

“These people are devaluing their currency because they’re not doing well against us,” Trump told Fox Business News in an interview. “So they devalue and we can’t. We are no longer on a level playing field.”

Trump had earlier again voiced frustration with Federal Reserve Chairman Jerome Powell for not cutting interest rates, less than a day after Powell said in a speech that the Fed still wanted to see how badly the economy is slowed down by the ongoing trade war with China. Powell’s comments had helped lift the dollar from a three-month low, which it hit last week after the central bank opened up the door for rate cuts this year.

The , which measures the greenback’s strength against a basket of six major currencies, rose 0.1% to 95.713 by 10:39 AM ET (14:39 GMT).

Trump told Fox that Powell was doing “a bad job” in not cutting rates, and compared him unfavorably to European Central Bank President Mario Draghi, who said last week that the Eurozone economy would need further stimulus if inflation failed to pick up.

“We should have Draghi instead of our Fed person, you know,” Trump said.

The which measures the greenback against a background of currencies, fell around a quarter of a percent after the interview, after having risen overnight on the back of Powell’s comments. By 1 PM ET (1600 GMT), it was at 95.583, down 0.1% on the day.

The dollar had risen earlier in the day after Treasury Secretary Steve Mnuchin said a U.S.-China trade deal is “90% complete.” Separately, Trump told Fox that he is “very happy” with the current trade situation with China.

Trump and Chinese President Xi Jinping are due to meet Saturday on the sidelines of the G20 summit and traders are hoping the two will avoid escalating trade tensions.

Official U.S. comments contrasted with some voices out of China. Hu Xijin, editor-in-chief of the Global Times, an English-language mouthpiece for Beijing, tweeted that “No Chinese official now speaks with such optimism. With dozens of hours left before Xi-Trump summit, Chinese state media has been keeping criticizing the U.S. harshly, a situation that never happened in the previous China-U.S, summits.”

Elsewhere, the euro was up 0.2%, with up at $ 1.1383, while was flat at $ 1.2693 and fell 0.4% to 1.3110.

Earlier, there had been little reaction to the day’s big data release. for May fell by 1.3%, well below expectations, although the news was leavened by the fact that orders, which strips out the volatile transportation sector, rose 0.3%.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Let’s block ads! (Why?)

Forex News