Trump in favour of a depreciating dollar

  •   23/03/2020 - 14h38
  •   HARMANT Adeline

Will the U.S. government implement a depreciation of the dollar? This is indeed what the latest comments of President Donald Trump suggest, who seems to praise the virtues of a decline in the value of the greenback by regularly criticizing the FED for not lowering its key rates sufficiently. Let's find out more about the reasons for these remarks.

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Trump in favour of a depreciating dollar
Image copyright: killerturnip - Flickr

A fall in the dollar to favour American exports :

Of course, the first objective of such a depreciation would be to reduce the US trade deficit, which is a priority objective of Donald Trump. However, the value of the greenback plays an important role here because it influences the country's international competitiveness. The fall in the dollar would therefore have the effect of boosting exports and thus reduce the trade balance deficit by boosting American growth.

But the objective here is mainly political since Donald Trump, in the middle of an election campaign, could strengthen his voting intentions in his favour among the working class if he succeeds in reviving the American economy in this way at the end of the current crisis.

Indeed, let us recall that apart from economic fundamentals, the American presidential elections may have an influence on the dollar rate. Indeed, we do not yet know the position of the Democratic candidate who will win the primaries since the candidates of this party, before the pandemic and in particular with regard to the increase in corporate taxation, may lead to a fall in the stock markets and thus the weakening of the greenback in their wake.

We therefore expect a very likely decline in the value of the dollar regardless of the outcome of the election since Donald Trump clearly states it in his objectives and it seems to underlie the climate that the victory of the Democrats would create in markets already in chaos. The only unknown is the extent to which this depreciation will take place and which will depend largely on the results of the elections on 3 November.

 

An uncertain context in view of the current health crisis :

The current coronavirus epidemic that continues to wreak havoc in the world and also in the United States is another important element to take into account as the Fed continues to lower its rates by 0.5 points at the beginning of March and a surprise cut in the middle of the month with the aim of bringing these rates down to a range between 0 and 0.25%.

Of course, this drop in rates has a negative impact on the value of the greenback, but the effect on the US economy and its competitiveness will have to depend on the disappointing economic situation.decisions taken by the other major central banks, also highly likely to lower their rates even further or to implement other major measures to support economic activity through the repurchase of public or private debt, notably as the ECB has just done.