Donald Trump’s immigration policy has gotten most of the press attention in recent days – and deservedly so. It’s nuts. Racist. Pointless. Possibly unconstitutional. Maybe illegal. Probably the brainchild of a clearly unhinged, right-wing (and not the Paul Ryan good kind of right-wing) propagandist. The whole nine yards.
But as far as markets are concerned, the new administration’s FX policy is just as crazy.
In fact, that statement is itself crazy.
That is, the fact that the new administration has a discernible “FX policy” is nuts. And this isn’t some “well it would be nice if…” kind of thing. The Trump White House is pretty clearly intent on implementing its FX policy via jawboning first and by God only knows what means next.
The verbal intervention started in earnest a few weeks ago with Trump’s “throw away” comments in the Wall Street Journal. Those comments, much like a lot of what Trump said on the campaign trail, are looking less and less like “throw aways” and more and more like policy commitments. Tuesday’s rants from both Peter Navarro and Trump himself underscore this point (more here and here).
It’s also becoming increasingly clear that no one is going to be spared here. Not even erstwhile allies like Germany and Japan (who, as far as Trump can tell, aren’t sending “rapists” and heroin peddlers into America).
Below, find new commentary out from Deutsche Bank that speaks to just how ridiculous this has become in the short span of 11 days.
Via Deutsche Bank
US President Donald Trump has finally turned his criticism toward the weak yen. He has accused other countries of giving themselves an advantage through money supply policies and weak currency guidance, and said of Japan and China, “They play the money market, they play the devaluation market and we sit there like a bunch of dummies.” Additionally, Peter Navarro, head of the White House National Trade Council, told the Financial Times that Germany “continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued”. Trump has often complained about China, Germany, Mexico and Japan (in order of the size of their trade surpluses with the US) and has expressed his desire to pursue bilateral trade talks, including currency provisions. This would be a true game changer that basically disregards WTO trade rules and IMF currency rules. However, US demands for currency adjustments are not a matter that these countries can instantly resolve.
The US president is presumably aware that he is making impossible demands with an eye toward bilateral negotiations. The markets see Trump’s aggressive fiscal policy as bullish for the USD/JPY and his anti-globalist views (protectionism, anti-immigration) as bearish, vacillating between the two sides. However, it is the Bad Trump that looks to dominate the news.