USD: A good central banker is like whipped cream – Commerzbank
|There is probably a broad consensus in the market that a second Trump term would be inflationary. I don't need to repeat the arguments here. You can find them everywhere. But what does this statement mean for USD exchange rates? The answer is: it depends on the Federal Reserve's monetary policy, Commerzbank FX analysts Ulrich Leuchtmann and Michael Pfister note.
The Fed is to resist Trump’s pressure to be USD-positive
“Politicians cannot resist the temptation to use the money printing machine to finance policies that they consider desirable. However, central banks in civilized societies are removed from the political process, but populist political styles usually sweep aside such reservations. And that is precisely why people should pay particular attention to what Donald Trump says about the independence of the Fed.”
“Wim Duisenberg, who later became the first president of the ECB, said of the Bundesbank that it was like whipped cream: the more you beat it, the stiffer it gets. Central banks should get stiffer under political pressure, should resist it. In doing so, they achieve two things: the politicians who exerted pressure achieve the opposite and will think twice in the future before repeating their disrespectful behavior; the public sees that the central bank is independent.”
“If the Fed leaves its key interest rate unchanged in September, some observers will get the impression that it is doing so because of Trump's demand. If the Fed lowers the key interest rate in September, this may be seen as an immediate USD-negative signal. But it would also signal that the Fed is resisting political pressure. And that in turn would be USD-positive, especially in the long term of four upcoming Trump years.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.