Jamieson, who is head of multi-asset investing, noted that the dollar weakened recently after a long climb.
“There seems to be general agreement that Trump will be good for the US dollar. Supporting arguments range from the promotion of a US-centric world to the upward pressure on the currency from a mix of better US economic growth, as well as a potential increase in the budget deficit,” he said. “However, since just before Christmas the dollar has weakened against both the major and minor currencies, and the sell-off has had a broad base to it – indeed the Mexican Peso has been the only currency not to stage a recovery.”
“The market is not helped by an apparent confusion surrounding the Trump Administration’s attitude to the dollar,” he continued. “There is always some macho appeal to having a strong currency but not if it means that Johnny Foreigner is stealing your lunch. Trump’s attitude to the Chinese has been clear for a long time but his manipulator label is now being attached, just as strongly, to the Japanese and Europeans.”
Jamieson added that this latest Fed meeting has revealed monetary policy makers in the US are not going to pre-judge the potential inflationary impact of Trump’s fiscal policies.
“In addition, they indirectly gave more credence to the lower than expected first estimate of Q4 GDP than the market expected,” said. “It means the interest rate call that might support the dollar is by no means a slam dunk. For investors then, it means the foreign exchange markets look set to remain lively.”
