Trump Reelection to Tank Dollar? | Summary and Q&A

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April 3, 2019
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Trump Reelection to Tank Dollar?

TL;DR

Despite initial expectations of a weaker US dollar, it has remained strong in Q1. The potential for a deceleration in US macro activity and changing rate expectations may lead to a weaker dollar in the second half of the year.

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Questions & Answers

Q: What factors have contributed to the US dollar holding up well in Q1 despite disappointing data?

The US dollar's strength in Q1 can be attributed to rising real yields, market expectations of rate cuts in other countries, and changing rate expectations in Europe and commodity currencies.

Q: What is the potential impact of Federal Reserve inertia on the US inflation spectrum and real yields?

If the Fed remains relaxed about rising inflation expectations and pressures, real yields that have supported the dollar may become less influential in the coming months.

Q: How will the upcoming presidential election in 2020 impact the US dollar?

The presidential election is expected to become a concern for markets, as pressure on the Federal Reserve from the president continues. This political environment may influence Fed policy going forward.

Q: How might changing rate expectations and a constructive backdrop in the euro zone affect the US dollar?

As rate expectations deviate from the US and a more positive monetary policy outlook emerges in the euro zone, investors may see justification to diversify away from the US dollar, potentially weakening it.

Summary & Key Takeaways

  • The US dollar has performed better than anticipated in Q1, despite disappointing data and expectations of rate cuts.

  • The risk of a recession in 2019 and 2020 is overplayed, with a more likely scenario being a general deceleration in US macro activity.

  • Federal Reserve policy will be more influenced by macro activity in 2020, but the impact on the US inflation spectrum and real yields is uncertain.

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