It turns out, the American president cannot control everything. For example, the dollar refuses to obey Donald Trump. If oil prices depend crucially on the US president’s statements, the greenback is not that influenced. No matter how many times Mr Trump says that he does not need the strong dollar, the national currency continues to strengthen.
Struggling to weaken the dollar, the American leader uses his entire arsenal ranging from rampant tweets to expressive tantrums. However, market participants pay little attention to such insinuations. Even explicit criticism of the Fed’s policy and almost blatant threats to the head of the financial institution cannot knock the dollar off the top. Probably, Mr Trump would not worry about the high dollar if it were not for Europe and the ECB. The single European currency is currently trading at the bottom of its range, and the ECB is actively trying to weaken the euro by launching new stimulus. As a result, other currencies are also depreciating, while the dollar, by contrast, is growing.
Dollar assets offer higher yields than assets in other currencies, such as the euro, the pound or the yen. This causes a spike in the dollar’s value. Apparently, the situation will not change much in the near future. The US currency has few reasons for decreasing. Now investors use the dollar as an investment object within the carry trade, though the dollar has always been a funding currency. This means that they can borrow the euro and the yen and invest in dollar bonds making profit on the difference in rates and the strengthening of the American currency.
