Peter S. Goodman: how Trump’s proclivity to Tweet has undermined faith in the dollar as a reserve currency
European Economic Correspondent New York Times, Peter S. Goodman recently wrote an article entitled: In the Age of Trump, the Dollar No Longer Seems a Sure Thing. He argues that since the beginning of the year, the dollar may be losing some status as markets grapple with Trump’s unorthodox actions.
Peter Goodman states that Trump’s take on international relations has subjected the dollar to further scepticism, enhancing the worries about the strength of the American economy and improvements in Europe and Asia.
Peter Goodman characterises the state of the dollar against other currencies as an expression of the American political environment. “Its value offers a gauge of sentiment for Mr. Trump’s prospects in achieving his economic goals, as well as worries about his potentially impulsive declarations.”
“Before Mr. Trump was even sworn in, many investors were buying into the so-called Trump trade, a bet that the new president’s plans for tax cuts, deregulation and a hefty dose of infrastructure spending would spur economic growth. This formulation has earned favour in the stock market. During the Trump administration, American shares have reached new highs, propelled by strong corporate profits and executives exuding optimism.
Yet the Trump trade was also a wager that the dollar would climb as investment flooded into the United States to exploit fresh growth opportunities.”
Goodman goes on to explain that these initial expectations have given way to the turbulence thus far. “Senior government officials have been hired and fired at the pace of a reality television show. Myriad disclosures have intensified questions about whether Mr. Trump’s coterie colluded with Russia to influence the American election. Big parts of his agenda have stalled.”
Whilst other regions such as Europe are showing “encouraging signs of vigor”, Trump’s growth plans have been side-lined.
“Spain has seen its economy return to pre-crisis size. France elected a new president, Emmanuel Macron, who has engendered hopes he will deliver growth. Even Greece, still saddled with gargantuan debts, has lately flashed signs of improvement.
Given these shifts in fortune, investors have been inclined to sell dollar holdings while shifting the proceeds into euros. Since January, the dollar has lost more than 11 percent against the euro.”