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Dollar weakens after Trump criticizes Fed

  • Published at 05:45 pm August 21st, 2018
Donald Trump
File Photo: US President Donald Trump speaks to reporters upon his departure from the White House in Washington, U.S., August 17, 2018 REUTERS

US presidents rarely criticize the Fed, whose independence is considered important for economic stability

The dollar weakened on Tuesday after US President Donald Trump criticized the head of the Federal Reserve for raising interest rates.

Trump told Reuters in an interview on Monday that he was “not thrilled” with Jerome Powell’s rate hikes and said the US central bank should do more to help him to boost the economy.

US presidents rarely criticize the Fed, whose independence is considered important for economic stability. But Trump has made reducing US trade deficits a priority, and the combination of rising interest rates and a strengthening dollar poses risks for export growth.

“It would appear that Trump would like to keep the US dollar a little on the weak side in order to remain competitive,” said CMC Markets chief markets analyst David Madden.

“But given the dollar has been in demand recently on account of geopolitical issues and the Fed’s monetary tightening policy, he might find it difficult to talk the greenback lower.”

The dollar index against a basket of six other currencies fell 0.4% to 95.544 as of 1050 GMT after touching 95.440, its lowest since August 9.

Escalating trade tensions between the United States and its trading partners as well as a plunge in the Turkish lira have pushed the dollar index up recently.

But the greenback weakened on Tuesday as investors ditched it as a safe haven before China and the United States hold talks this week that may help ease their dispute over trade.

Trade tensions have on the whole helped the dollar, which benefits from geopolitical turmoil as the market seeks out less risky investments.

“It looks as though Trump’s comments have caught the market very long dollar after last week’s emerging market rout,” said Chris Turner, head of currency strategy at ING in London.

Franc up

The dollar is unlikely to be knocked from its perch as one of the strongest performing major currencies this year, Turner said.

“As long as (Trump) only verbally attacks the Fed rather than actively trying to influence its monetary policy this should not have any far-reaching effects on the USD exchange rates,” he added.

The Fed has raised interest rates twice this year and is expected to do so again next month.

Traders are preparing for the release of Federal Reserve policy meeting minutes on Wednesday and an annual Jackson Hole symposium for insights into the direction of US monetary policy.

Against the US currency, the euro strengthened 0.4% to a daily high of $1.1544.

Concerns that a currency crisis in Turkey would hurt euro zone banks and uncertainty about the Italian government’s planned budget have weighed on the euro recently.

Trump’s remarks appeared to bolster appetite among investors for the Swiss franc, typically considered a safe haven.

The franc was up 0.4% at 0.9872 francs, a three-week high.

The Australian dollar was 0.3% higher at $0.7363, after Prime Minster Malcolm Turnbull survived a leadership vote by a narrow margin.