Well folks, I’ve gotta tell you, it’s coming apart at the seams now.
The dollar is heading sharply lower (which means the Treasury shorts are getting proper f*cked) following remarks by Trump’s de facto trade czar Peter Navarro – who is also a pseudo economist with a shoddy reputation in academia – who earlier pegged Germany as a “currency exploiter” (who the hell knows what that means).
“USD/JPY -1% at 112.71 vs 112.50 fresh low as markets react to latest comments from President Trump blaming other countries for currency devaluation,” Bloomberg wrote earlier, adding that “USD/JPY saw selling by leveraged names in drop from ~113.30.”
A consumer confidence miss didn’t help.
From FT (on Navarro):
Germany is using a “grossly undervalued” euro to “exploit” the US and its EU partners, Donald Trump’s top trade adviser has said in comments that are likely to trigger alarm in Europe’s largest economy.
Peter Navarro, the head of Mr Trump’s new National Trade Council, told the Financial Times the euro was like an “implicit Deutsche Mark” whose low valuation gave Germany an advantage over its main trading partners. His views suggest the new administration is focusing on currency as part of its hard-charging approach on trade ties.
In a departure from past US policy, Mr Navarro also called Germany one of the main hurdles to an American trade deal with the EU and declared talks with the bloc over a US-EU agreement, known as the Transatlantic Trade and Investment Partnership, dead.
Angela Merkel, the German chancellor, responded to Mr Navarro’s allegations, saying Germany could not influence the euro. At a press conference in Stockholm with Stefan Lofven, Sweden’s prime minister, Ms Merkel said Germany has always “supported an independent European Central Bank”.
Currency strategists were not amused. Here’s Nordea’s Martin Enlund:
On Peter Navarro's $EUR remarks. Just ignore him. A weaker USD would make Fed more hawkish.
— Martin Enlund 🦆🚁 (@enlundm) January 31, 2017
And here’s SEB’s Carl Hammer:
Trump advisor calls euro "grossly undervalued" – that's FALSE if you trust our model (SEBEER) which actually shows the contrary… pic.twitter.com/xaH394WRAZ
— Carl Hammer (@CarlHammerFX) January 31, 2017
Note that this is the same Peter Navarro who I called an “idiot” last month, in the second most read post in this site’s brief history. Here’s an excerpt:
You don’t have to have a PhD in econ to understand why Trump’s policy proposals for dealing with the Chinese ‘threat’ are borderline delusional. At the most basic level, the new President is essentially proposing that we begin to dismantle global trade altogether in favor of a kind of inward-looking, neo-isolationist regime. Obviously this represents a step backwards for society and should thus be cast aside without further consideration.
But alas, it wasn’t cast aside and now we’ve got what amounts to a trade Czar -in Navarro -who actually believes in Trump’s ravings. And why shouldn’t he believe in them? After all, he inspired them!
It should be noted that this is just the latest example of something I’ve been warning about since the election. Namely that Trump and his inner circle are not opposed to effectively hijacking monetary policy by verbally intervening in FX markets.
Finally – and perhaps most importantly – one wonders if Navarro’s comments might just reflect the political biases of Steve Bannon, whose Breitbart News has been fanning the populist flames in Europe for years in an apparent effort to bolster the prospects of nationalist politicians in France, the Netherlands, and yes, Germany.