Posted by Oliver Meredew on January 24th, 2018.
As the 45th President of the United States, Donald Trump has been a driving force behind much of the US Dollar exchange rate movement we’ve seen over the last 12 months.
Trump’s election victory in November 2016 sent the US Dollar higher on hopes his tax and spending plans would bolster domestic growth and stoke inflation. But the so-called ‘Trump Bump’ wasn’t set to last and USD exchange rates have been on a downtrend overall.
‘The Donald’ made a lot of promises during the 2016 Presidential election and pledged to ‘make America great again’, but what has he achieved in his first year in office and how has his presidency affected the US Dollar?
Soon after his inauguration Trump focused on the Affordable Care Act (ACA), a healthcare insurance scheme also known as ‘Obamacare’.
The President was critical of the policy, but was ultimately unsuccessful in his attempts to replace it with the ‘Affordable Health Care Act’ (AHCA) due to a lack of support in the US Senate.
This was disappointing in itself but it also inspired concerns that the President’s hotly anticipated tax and spending plans might also fail to come to fruition, and the US Dollar declined accordingly.
Further problems ensued in the form of rumours about the President’s ties to the Russian government.
During his 2016 election campaign, Trump spoke favourably of Russian President Vladimir Putin, saying:
‘I don’t know [him, but] I think it would be great if we got along with Russia because we could fight ISIS together.’
Rumours of Russian involvement in Trump’s election win started circulating soon after his victory.
2017 was dotted with developments in the ongoing investigation, starting with FBI Director James Comey looking into links between the election campaign and Russia.
Things then took a startling turn when Trump fired Comey in May.
Dismissing Comey didn’t make the issue go away, however, as former FBI Director Robert Mueller was soon appointed to take over the investigation.
Some economists believe the situation could intensify over the year ahead, and that we could potentially see the indictment of some of Trump’s closest aides.
Any political uncertainty created by such a development could put the US Dollar under significant pressure.
Almost on the anniversary of his first year in office, Trump received another setback from the Senate rejecting funding plans, leading to a government shutdown.
While this hasn’t been the best anniversary present the President could hope for, the shutdown isn’t expected to cause much lasting damage to the US economy or the Dollar.
Although Trump’s foreign policy pronouncements haven’t had as much impact on the US Dollar as domestic developments, several of his decisions caused quite a stir last year.
One of Trump’s earliest foreign policy measures was to withdraw the US from the Trans-Pacific Partnership (TPP), a multinational trade agreement that hadn’t been fully ratified when he took office.
The remaining members are still trying to arrange a workable TPP deal.
Meanwhile, few people could forget Trump’s grand campaign promise to build a vast border wall with Mexico to try and curb illegal immigration and smuggling.
Besides the staggering logistics involved in this feat, perhaps more extraordinary was the assertion that the Mexican government would pay for the construction.
One year on, the wall only exists in the form of eight hulking prototypes, while Mexican President Enrique Peña Nieto has yet to contribute a single penny.
Trump’s antagonistic relationship with North Korea has also been dominating headlines – and sparking currency movements – over the last twelve months.
Verbal clashes with Kim Jong-Un have both weakened and strengthened the US Dollar, with concerns about North Korean missile tests driving nervous investors to safe-haven assets on more than one occasion.
Remaining on the subject of foreign policy, before the close of 2017 Trump made the decision to move the US embassy in Israel from Tel Aviv, where most countries have their embassies, to Jerusalem. The city is claimed by both Israelis and Palestinians as their holy city.
The move sparked controversy and protests across the world, with the implication being that the US now officially recognised Jerusalem as being Israel’s capital.
There’s a saying in US politics – “It’s the economy, stupid!”
This was the phrase that carried Bill Clinton to the White House in 1992, and its logic remains incontrovertible.
When it comes to the stock market, Trump appears to have had a positive impact.
Since taking office, Dow Jones Industrial Average (DJI) index of leading shares has climbed on the ‘Trump bump’ effect, breaking the 26,000 mark and achieving new record highs.
Trump himself has frequently touted these figures, declaring that the stock market being at an all-time high ‘doesn’t just happen’.
However, some industry experts argue that the movement is due to external factors in addition to the assumption that Trump will stimulate the US economy with his economic policies.
Late in 2017, Trump was finally able to progress one of his key campaign promises when his tax reform plans were narrowly passed in the Senate.
Among other things, these reforms cut taxes across the US earning spectrum, although wealthier citizens could see a disproportionately high benefit from the changes.
Initial hopes that tax reform would boost the US economy were high, but the US Dollar has so far failed to be lifted by the news. Economists speculate this is due to the plans being already priced into the US Dollar, although concerns that the reforms may not have as much of a positive impact as hoped have also played a part in restraining USD exchange rates.
This year could prove to be just as interesting for Trump and the US Dollar, so keep an eye on the TorFX blog for the latest updates.
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