Bloomberg <\/p>\n
(Bloomberg) — President Donald Trump\u2019s relaxed tone about the dollar selloff is fueling speculation the US currency is at the start of a longer-term decline.<\/p>\n
The dollar suffered its deepest one-day drop since last year\u2019s tariff rollout after Trump said on Tuesday he didn\u2019t think the currency had weakened excessively. Bloomberg\u2019s dollar gauge slid as much as 1.2% as the comments sapped the appeal of the greenback and US Treasuries \u2014 boosting what has become known as the debasement trade.<\/p>\n
Most Read from Bloomberg<\/p>\n
For Stephen Jen, founder of Eurizon SLJ Capital, the Trump administration\u2019s view of the dollar marks the start of a new phase of declines as they target an exchange rate that supports US exporters.<\/p>\n
\u201cThis may very well be the beginning of the next leg lower in the dollar, and many may not be prepared for it,\u201d Jen, a former Morgan Stanley currency strategist who developed the \u201cdollar smile\u201d theory, wrote in a note before Trump spoke. \u201cThere has been a generation of currency analysts accustomed to dealing with a strong dollar and a strong US economy, and unable to process the scenario of a weakening dollar and a strong US economy.\u201d<\/p>\n
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The dollar\u2019s recent decline is great for US businesses, Trump told reporters in Iowa. While that\u2019s in line with previous commentary from US officials, his remarks moved currency markets late Tuesday, partly because they appeared to validate the steep decline in the greenback in recent sessions.<\/p>\n
Bloomberg\u2019s dollar index sank to the lowest level in almost four years in New York trade, before trimming some of its declines in Asia. The dollar\u2019s slump helped push both the euro and pound to the strongest levels since 2021, while the Swiss franc reached the highest since 2015. In Asia, the South Korean won and Malaysian ringgit led gains against the US currency.<\/p>\n
\u201cWhen the person who could jawbone to defend the currency sounds unconcerned, the perceived backstop under the dollar gets thinner,\u201d said Anthony Doyle, chief investment strategist at Pinnacle Investment Management in Sydney. \u201cMarkets are reopening the question of whether the US is asking investors to accept a lower standard of stability, and therefore demanding a higher price for bearing US risk.\u201d<\/p>\n
Trump\u2019s embrace of the weaker dollar can be seen as a further deterrent to overseas holders of US assets, coming on the heels of tariff threats against key allies, attacks on the Federal Reserve\u2019s independence, and unpredictable policy making. Trump\u2019s seeming indifference to the dollar\u2019s drop is seen by some as another signal to sell the currency and accelerate the \u201cquiet-quitting\u201d of assets such as Treasuries.<\/p>\n
Story Continues <\/p>\n
What Bloomberg\u2019s Strategists Say…<\/p>\n
\u201cThe risk-reward for the US currency remains heavily skewed in favor of further weakness.\u201d<\/p>\n
\u2014 Garfield Reynolds,MLIV Asia Team Leader. Click here for the full analysis.<\/p>\n
At least one market metric indicates rising concern about a longer-term decline in the US currency.<\/p>\n
A gauge of so-called risk reversals for the dollar against its major peers dropped to the lowest since June on Tuesday, based on an index from JPMorgan Chase & Co., indicating increased demand from investors for protection against a weaker greenback in options markets.<\/p>\n
Not everyone sees Trump\u2019s comments as the start of a longer-term selloff in the dollar.<\/p>\n
\u201cPresident Trump\u2019s comment are a sign that the US administration is not against the recent dollar decline, but more so on the basis that the US wants to see currencies like the Chinese yuan and Japanese yen appreciate,\u201d said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney.<\/p>\n
\u201cI don\u2019t think the president wants to instigate a generational shift in the dollar, but the ambiguity on the dollar position adds another layer uncertainty,\u201d he said.<\/p>\n
Rob Kaplan, Vice Chairman at Goldman Sachs and former Dallas Fed President, discusses the outlook for Fed policy and the impact from a weaker dollar. He speaks with Stephen Engle from the sidelines of a Goldman Sachs conference in Hong Kong.Source: Bloomberg <\/p>\n
A prolonged weakening of the dollar brings with it a number of dangers for the US economy, according to Robert Kaplan, vice chairman at Goldman Sachs Group Inc.<\/p>\n
\u201cIt is true, a weaker dollar boosts exports. However, the United States has $39 trillion of debt on its way to $40 trillion plus, and when you have that much debt, I think stability of the currency probably trumps exports,\u201d he said in an interview on Bloomberg Television.<\/p>\n
\u201cI actually think the US is going to want to see a stable dollar and wants to see stability. They want to be able to sell the long end of the Treasury curve: a stable dollar helps,\u201d he said.<\/p>\n
–With assistance from Miles J. Herszenhorn, Aleksander Solum, Stephen Engle, Masaki Kondo and Matthew Burgess.<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
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