Trump Impeachment: A Plus For The Dollar

The Democrats are starting an impeachment inquiry against Trump. I believe that the inquiry and particularly the impeachment, if successful, would be good for the dollar. That’s because Trump and his erratic trade war with China are the main cause of uncertainty facing the global economy and the dollar. Restoring some measure of calm to the markets would bring back confidence in the dollar. Furthermore, if Trump and the uncertainty that he causes were out of the way, the Fed would have less reason to cut rates.

There’s no doubt that the impeachment process itself is likely to be a cause of uncertainty. Yet the political chaos that might ensue won’t necessarily be bad for the dollar. We saw during President Nixon’s times that the dollar could rally even during the constitutional crisis caused by his “Saturday Night Massacre.” Although it started to fall again as the Judiciary Committee began considering whether to impeach him, it bottomed out well before the impeachment proceedings began and was rising as the Judiciary Committee approved the articles of impeachment. By the time Nixon resigned, the idea was well discounted in the market, and there was relatively little reaction in the market. It’s not something that happens overnight, so the market has time to adjust.

With President Clinton, the big move came ahead of the vote to impeach, but once the Senate trial began, the dollar bottomed out and began rising again.

In both cases, the dollar began recovering well before the proceedings finished. We might therefore expect a brief period of turmoil for the dollar if it looks like Trump’s time in office might suddenly be truncated, but the prospect of an end to his term – and therefore perhaps a rapid improvement in global trade relations – could provide a solid boost for the US currency.

The fact is, while impeachment adds a bit to market uncertainty temporarily, Trump himself is the major cause of market uncertainty, as trade continues to dominate investors’ concerns. Monetary policy too has recently been a source of above-average uncertainty, and that too can be linked back to Trump, as the Fed cites “financial and international developments” --  a code phrase for the trade war and its impact on the stock market – as one of the key factors that it’s watching when considering what to do with rates.

Even former NY Fed president Bill Dudley argued in a Bloomberg column recently that Fed officials should state explicitly that they “won’t bail out an administration that keeps making bad choices on trade policy.” “There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy,” wrote Dudley, who headed the New York Fed from 2009 to 2018. While I can’t see the Fed ever agreeing to politicize its decision so blatantly, what Dudley says about the administration’s “bad choices on trade policy” and Trump’s reelection is true, in my opinion – and so ensuring that Trump can’t be re-elected by impeaching him is likely to restore calm to the markets and therefore be a plus for the dollar.

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

Other Topics

Politics