Investing.com – For the past several months, Donald Trump calls for the Fed to lower rates to support the economy, but also to weigh on the Dollar, far too high for his taste, which penalizes according to the United States in the international trade.
He should win the case at the end of the month in respect of the interest rate, with a decrease of 0.25% in the rate of Fed Funds widely anticipated.
However, this drop rate is just so early that there was little chance that it significantly affects the Dollar down, since this probability is already integrated almost 100% in the course of the Dollar.
In this context, we can imagine that Trump in vienna to implement other levers that the Fed to achieve to bring down the Dollar.
This is the theme developed by the bank Goldman Sahcs in an analysis published yesterday.
Goldman Sachs (NYSE:GS) has described Thursday the direct intervention on the foreign exchange market as a possibility, although it is a low risk but growing”. The analyst Michael Cahill pointed to a rising series of tweets, comments, actions and proposals to the presidential who have given us monetary policy under the spotlight.
And though such a measure would be against this practice since the mid-1990s, “in a world where quantitative easing has become almost conventional, intervention in the foreign exchange market is not a big step” to take, said Cahill, referring to the programs QE put in place by the major central banks in response to the global financial crisis.
Goldman Sachs said that a U.s. decision to sell dollars would likely cause a reaction to a “major” market.
In recent weeks, Trump has complained about Twitter (NYSE:TWTR) and in interviews that the euro zone (among others) has weakened its currency to the detriment of us exporters.
Last month, Trump was also directly referred to the president of the ECB, Mario Draghi, on Twitter, after he has opened the door to new measures of monetary stimulus for the euro area.
In addition, Bloomberg reported Wednesday that Trump has asked his advisers to look for ways to weaken the dollar.
The comments from Trump and the measures taken by policymakers around the world have feared a possible “race to the bottom”, the countries are acting to weaken their currencies against each other.
However, some reasons to think that intervene directly on the Forex could prove to be complicated for US.
Goldman Sachs has also raised a number of operational concerns that could complicate the response efforts. If the Fed does not participate in such an operation, and if the Treasury was forced to go alone, jalal would limit for example the extent of the intervention, even if it is likely that she would still have a significant effect on the market.
However, it is very likely that the Fed is handing the Treasury, believes the bank, noting that Powell had referred to traditional role of the ministry as a steward of the exchange rate policy.
The other hand, the intervention against the currencies of allies, traditional trade, such as the euro area, would likely be seen as an escalation of tensions in international trade.
And, despite everything, the efforts to exert pressure talk about the dollar decline seem to be effective enough, points out Goldman. This is one of the reasons why the risk of a direct intervention seems in the end quite limited, believes the bank.
Let us note to finish that the Dollar Index, a measure of the greenback against a basket of six major currencies, reached its highest level in nearly two years earlier this year, but has since declined as expectations of rate cut have increased, showing always an increase of 0.9 % since the beginning of the year.