Don’t Blame Trump, Blame FOMC’s Bostic For Dollar’s Freefall on Monday

The U.S. Dollar is trading slightly lower against a basket of currencies on Tuesday. Most of the price action, however, is sideways. Additionally, yesterday's dollar index low at 95.305 remains intact. This means there has been no follow-through to the downside following the late session comments from President Trump which drove the index into its low for the day.

Let's see a show of hands from those who actually saw the dollar index trade that last hour of the session. Let's see a show of hands from those who went to work, read the headline and blamed President Trump for the dollar's lower close on Monday. Yep, that's what a thought. Because if you actually watched the dollar trade yesterday, you would've known that Trump's comments may have contributed to a last hour spike from 95.66 to 95.305, or about 36 points, but he wasn't responsible for the intraday break from a high of 96.30.

If you do the math, you'll see that 96.30 was the high for the day and 95.305 was the low. This was a total of about 100 points. Further analysis will show that Trump's comments may have contributed to about 36 percent of the total loss for the day. This means that other factors contributed to the majority of the sell-off.

The point I'm trying to make is that it's easy to blame Trump for anything that occurs out of the ordinary in the market, and that's just not fair and balanced analysis.

If you go back and follow the news from 24 hours ago, you'll see that other more important factors started the dollar on its intraday freefall.

Even before the dollar reached its high, emerging market tension during the European session, had the dollar bid. Once the overall markets turned "risk-on", the dollar fell from its highs accordingly. Throughout the session, sellers dominated the trade on speculation the upcoming trade talks between the United States and China would yield some fruit. Finally, some dollar bulls may have just decided to cash in their profits ahead of Wednesday's Fed minutes and the annual Jackson Hole symposium later in the week.

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FOMC Member Bostic Broke the Dollar

What was missed by most news services and a few analysts were the midday comments from Atlanta Federal Reserve Bank President Raphael Bostic. He said on Monday he is maintaining his expectation for one more interest rate hike this year, as trade tensions and international events add some downside risk to an otherwise strong U.S. outlook.

"The risks are balanced in the sense that we had a significant stimulus through the tax reform and the spending package. That is all upside risk … Then you have all these other things going on to cause sort of an offset to some extent," Bostic told reporters in Kingsport, Tennessee.

"I came in the year with three moves and I am still in that space.

In my opinion, Bostic was more responsible for the acceleration in the intraday downtrend in the dollar than President Trump. But didn't they essentially say the same thing. Bostic went against the grain and said he believes one more rate hike is necessary when the rest of the financial world favors two. Trump said he's "not thrilled" by the Fed rate hikes.

The difference is Bostic is a Federal Open Market Committee Member and he gets to vote on whether to raise rates or refrain. All Trump can do is voice his opinion and why can't he. Other than a bank CEO, I can't think of many other CEO's who want to see interest rates go up. They raise the cost of doing business which affects a company's profitability. Trump is responsible for the U.S. economy and he can express his opinion on interest rates whenever he wants. It doesn't matter what he says anyway because the Fed is independent. Bostic, on the other hand, gets to vote on rate hikes and he told you exactly how he is going to vote. So why no headlines? Why no repercussions?

This article was originally posted on FX Empire


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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