US strongest. Dollar the speculation tips Trump Intervention

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For many years, US currency policy has had no policy. Administration rarely intervened in markets, suggested to other countries the same and claimed that the country had a strong dollar.

This raised many questions among investors and traders: How and what circumstances would US officials intervene? Would it work? What would other countries do in response?

President Trump attempted to reduce the US trade deficit and complained that the country's strong dollar, which it places on the Federal Reserve, places interest rates higher than those abroad, which prevents this through US companies. put competitive disadvantage.

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He again Thursday on Twitter The European Central Bank announced plans to cut rates and buy bonds to help improve its flagship economy.

The dollar went briefly on the ECB's action, and by the end of last week it was up 9.8% from its 2018 lows against an index of six major currencies, according to

Intergovernmental Exchange
.

The dollar gives a strong benefit to US importers but makes American exports more expensive for foreign customers, weighing on US manufacturers and seeking the earnings of multinational companies who have to convert foreign profits into dollars.

Fred Bergsten,

A senior member of the Peterson Institute for International Economics said, “If you were serious about trying to reduce the US trade deficit, you would have to find a way to weaken the dollar's exchange rate.” T

The main challenges are two challenges, said Mr Bergsten and others: Any attempt to weaken the dollar would work against current market forces and is unlikely to attract international support, raising doubts about its effectiveness. . It is unclear whether the Fed, who usually coordinates with the Treasury Department on currency movements, would return these efforts. “You would go against basic economic principles and political reality,” said Mr Bergsten.

The administration put mixed symptoms on his mind. Mr Trump's advisers have said that intervention from the board, but the president has declared that he has not been removed. Wall Street analysts do not expect that intervention is imminent, but last month

Morgan Stanley

Strategists said that the FED's longer rejects Mr Trump's demands for reductions in rates, it is likely that intervention will occur.

In Congress, Republicans and Democrats, including

Elizabeth Elizabeth Warren

(D., Mass.), Trying more action to keep the dollar stronger.

As the recent strength of the dollar reflects higher US interest rates, the most effective way to weaken it is to reduce rate subsistence. But the interest rate decisions of the Fed are independent of the administration.

The White House has its own levers. The Gold Reserve Act 1934 gives wide powers to intervene by selling sales to buy foreign currencies.

Treasury Department maintains a fund of about $ 95 billion for such operations, and the Federal Reserve Bank of New York, as Treasury agent, could be instructed to liquidate some of those holdings to dollars. sell. The Fed would be obliged to adhere to it.

The Exchequer may also “store” some of the fund's foreign currencies with the FED, as its assets are promised in exchange for newly created dollars. Fed's chairman and vice-chairman and president of New York Fed would have to approve it.

The Fed also has the power to intervene in currency markets directly through sales sales, and often coordinates it with a larger surge to bring its currency operations. In practice, Fed and Treasury operations have been split evenly since the mid-1990s.

Would such an operation work?

The US intervention would be tiny compared to the $ 5-trillion-in-day foreign exchange market, and is likely to be more effective against smaller market currencies, rather than larger ones like the euro.

It would be more effective if the Fed Ministries and other finance ministries and central banks took part, as during the 1985 Plaza Agreement when France, then West Germany and Japan joined the United States.

Since 1995, the United States has intervened three times – in 1998, 2000 and 2011 – each time with cooperation from the FED and other countries.

With growth in other countries falling behind the US economy, it is difficult to imagine international allies who agree to buy dollars to help US economic growth strengthen their cost, said Mr Bergsten. Some may try to counteract US intervention by selling their own currencies, which would essentially neutralize the benefits. In the Wall Street Journal survey this month, 78% of economists said that the intervention would be little or very effective.

Large-scale dietary intervention would also be in a terrible state. Some officials may be reluctant to support further financial mitigation, as weaker dollars encourage import prices and put upward pressure on inflation. Cooperation could be a concern about the independence and credibility of nutrition when political pressure is on lower rates before it.

On the other hand, “You would be sending an unhappy message if you were not going,” said the White House was being tensioned.

Edwin Truman,

former Fed and Treasury official involved in currency policy for more than 20 years. To avoid pouring “gasoline on fire, then you could go with it.”

Write Kate Davidson at kate.davidson@wsj.com

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