USD: Impacted by the US politics - AmpGFX

According to Greg Gibbs, Analyst at Amplifying Global FX Capital, Trump’s economic policies were always potentially quite bullish for the USD -  tax cuts and infrastructure spending were likely to boost growth and threaten to push up inflation, creating the potential for faster rate rises. 

Key Quotes

“The trade policy also threatens to dampen global growth and boost imported inflation, both of which were potentially bullish for the USD.”

“For much of 2017, the market lost confidence in the ability of Trump to deliver on economic policy reform and the market often feared political instability.”

“Even after Trump and Republicans delivered on tax reform, it has taken the market a while to view Trump’s administration as positive for the economy. Political instability remains with Trump’s approval rating still low and odds favouring the Democrats regaining control of the House of Representatives in the November mid-term elections (if not both houses).  The Muller investigation is also tightening the noose around Trump associates and remains a potentially destabilising event for the US government.”

“A high turnover of Trump’s cabinet and a shift in the policy agenda to trade policy initially exacerbated the sense of political instability and appeared to weaken the USD in March/April.  However, trade protectionist policy has switched from a negative to a positive for the USD, via threatening the outlook for global growth, while raising inflation risks in the USA.”

“Political uncertainty remains, however, the Trump policies that were initially viewed as a positive for the USD in the first months after his election are returning to the foreground.”

“Trump is also asserting more leadership of his cabinet and proving resilient to media criticism and controversy.  He can claim wins on tax policy, increasing spending for the military and gaining more stability in the passage of spending bills.  He is arguably gaining traction with his trade policy agenda, and may have helped bring peace on the Korean peninsula.”

“Political risk in the US remains; Trump remains a polarising leader, but he is making progress on his agenda and contributing to a stronger more confident economy.”

“Uncertainty is now rising around Syria and Iran, but rather than weakening the political position of Trump, his more assertive foreign policy team may be improving his approval at home while generating more geopolitical risk in the global economy.”