Donald Trump by far most important factor to influence FX
Nov 26 (Reuters) -U.S. President-elect Donald Trump is by far most important factor to influence FX next year with his plans likely to fuel demand for a safer dollar that could spur a rise in its value big enough to be a problem he may have to deal with.
The dollar index, which has risen around 8% since the start of October is already having a significant tightening effect for monetary policy that raises the likelihood that the Federal Reserve will lower U.S. interest rates.
This will suit the new president's effort to boost the economy, while the strength of the dollar, which cheapens imports, will not.
Unfortunately for the administration, the more stringent any effort to slow imports from China, Mexico, Canada and Europe, the greater the demand for safer assets may become, and the greenback as the world reserve is the safest of all.
This vicious circle could push the greenback much higher, and with the U.S. unit already approaching the peak of an uptrend in place since 2011, traders who only recently began to bet on it rising, have the support of a potentially bullish technical backdrop.
The dollar, which had gained almost 40% since 2011, stood around 3% below 2022's peak at the end of October. With the dollar index gaining around 4% since then, the greenback is probably challenging its highest level for decades.
The situation Trump thinks is bad has materially worsened in the last few weeks and one way to cure it could be for him to talk the U.S. currency as he did during his last term in office, or even go so far as to consider abandoning a strong dollar policy altogether.
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USD index https://tmsnrt.rs/3VaysKO
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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