Trump's comments likely weighed on the dollar - BBH

Analysts at BBH note that the US dollar is broadly lower against major and emerging market currencies and has given up yesterday's gains and more as the proximate cause appears to be comments by President-elect Trump in a Wall Street Journal interview.  

Key Quotes

“There are two parts of Trump's comments that would have likely weighed on the dollar separately, and together they seem to be worth between 0.5% and 1.0% for the major currencies.  First, Trump pushed against the "border adjustment" plan from Republicans that would have taxed imports and exempted exports.  He said it was "too complicated."  Recall, many economics, including Harvard's Martin Feldstein, argued that the tax would spur an "automatic" 20-25% increase in the dollar.”

“Second, Trump specifically said the dollar was too strong.  The context was about China, but the remarks seemed to have broader implications.  "Our companies can't compete with them [China] now because our currency is too strong.  And it is killing us."  He said the yuan was "dropping like a rock" and the central bank was supported it simply "because they don't want us to get angry."  

“The investment community, like Americans themselves, is grappling with how literal to take the seemingly visceral remarks.  Some of the strident positions taken during the campaign have been softened, including the nomination of at least five men from Goldman Sachs, not pushing for criminal charges against Clinton, and citing China as a currency market manipulator on Day 1 (which, in any event, is now said to be not the day after inauguration but Monday January 23).  It is the uncertainty that is weighing on the greenback today.”

“In the larger picture, of the numerous factors that impact foreign exchange rates, the wish and desires of officials do not often seem to be particularly salient.  Our long-term bullish outlook for the dollar is based on the divergence of monetary policy, the relative health of the financial system, the anticipated policy mix, and the uncertainty surrounding this year's elections in Europe.”