Whether the weak dollar is the result of a mistake or planned impact from the US government, it comes in a very convenient time for both the Fed and the Trump administration.
That's why. The decline in the dollar makes imports more expensive for US companies. In a well-evolving economy, such as the state's reaction to companies, is to pass these additional costs to consumers. In this way, they raise commodity prices, and this helps the Fed to reach its inflation target.
On the other hand, the Trump administration wants the US GDP to move at around 3 percent, and the weaker dollar is necessarily part of the high GDP formula.
If the dollar continues to decline, we expect US inflation to start at a rapid pace of growth and make the Fed raise interest rates at least 4 times in 2018. That would stabilize the dollar somewhere, and if Trump's policy gets more balanced and the country's economic data improves, it's very likely we will see a reversal of the dollar's downward trend.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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