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Trump And The Dollar

I was invited to discuss the potential impact of a Trump presidency on the with Bloomberg’s with Joe Weisenthal, Oliver Renick, and Alix Steel on “What’d You Miss” show yesterday afternoon, Of course the topic lends itself to all sorts of partisanship. However, I put aside my own political axes and focused on two potential channels through which could impact the dollar.

The first is through a foreign economic policy that undermines US treaty obligations under various trade agreements. The US debtor status in the international investment position (foreign investors own more US direct and portfolio assets than Americans own of foreign assets) leaves the dollar vulnerable to a reversal of global investment. Some of the unilateral pronouncements if implemented would scare foreign investors.

The second is the policy mix. A stimulative fiscal policy and a tighter monetary policy is the most supportive mix for a currency. Here too is it hard to distinguish campaign rhetoric from policy inclinations, but it is possible that under in a Trump Administration, fiscal policy will be relaxed. The independence of the Federal Reserve will allow it to continue to gradually normalize policy.

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