Editor’s note: Trump is highlighting the dollar misalignment more these days. The fact that he is talking about interest rate difference between the EU and the US means CPA’s education on the issue is working.
President Trump recently pushed back against the European Central Bank, claiming the European bloc was unfairly competing against the U.S. by deflating the value of the euro, even as the U.S. dollar remains relatively strong.
[Megan Henney | June 22, 2019 | Fox Business]
“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA,” Trump wrote in a tweet. “They have been getting away with this for years, along with China and others.”
Earlier in the day, Draghi said the ECB was ready to cut interest rates, if the economy needed it. Draghi said during a speech in Portugal that “further cuts in policy rates...remain part of our tools.” His comments sent stocks higher, and dragged down the euro against the U.S. dollar.
But why does the president think a weaker U.S. dollar is better for the economy?
Essentially, if the U.S. dollar is worth less relative to other currencies, foreign countries are likely to buy more American goods -- boosting things like U.S. manufacturing, while simultaneously helping to close the trade deficit. Trump frequently accused China of keeping its currency, the yuan, intentionally low to make exports cheaper, and therefore increase the trade imbalance.
Currently, the yuan is around an exchange rate of seven, compared to the U.S. dollar.
And since Trump has taken office, the dollar has remained strong -- much to his displeasure -- thanks to protectionist trade policies, a big fiscal stimulus from the 2017 Tax Cuts and Jobs Act and interest rate hikes by the Federal Reserve (which Trump has habitually pressured to lower rates).
“I want a strong dollar, but I want a dollar that does great for our country, not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business,” Trump said during a speech in March, before launching into criticism of Fed Chairman Jerome Powell.
“We have a gentleman that likes a very strong dollar in the Fed,” he added, referring to Powell.
On Thursday, however, after policymakers at the U.S. central bank signaled they would lower interest rates as soon as 2020 (if not earlier), the dollar weakened against other major currencies.
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