The dollar is the big loser

The latest upheaval in President Donald Trump’s administration is moving the U.S. closer to sparking a global trade war that could sink the dollar.

The risk that the U.S. pivots toward more protectionist policies is increasing with the departure of moderate voices, including Secretary of State Rex Tillerson and White House economic adviser Gary Cohn, said Paresh Upadhyaya, a portfolio manager at Amundi Pioneer Asset Management. The administration’s next move on trade came Wednesday, as it announced a challenge to Indian export subsidies.

Upadhyaya pegs the chance of a U.S.-led trade war as high as 30 percent, an outcome he sees pushing the dollar about 12 percent weaker to $1.40 per euro within two years. If the U.S. inflames relations with its trading partners, particularly China, and other nations retaliate, investors will likely sell the greenback and seek shelter in the yen, Swiss franc, euro and developed-country sovereign debt, he said. Stocks also stand to suffer, in his view.

Goldman Sachs Group Inc. strategists are looking past protectionism to broader reasons for dollar weakness, including an improving global economy and prospects of tighter monetary policy outside the U.S. The firm says Trump’s tariffs still fall within the range of actions by previous presidents in the last 20 years, which didn’t spur trade wars.

However, U.S. politics still appear to be driving investor sentiment.

“Currency traders are bailing out of the dollar,” Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto, wrote in a note. “This confirms an extraordinary shift in psychology -- in the face of turmoil in the White House, the greenback appears to have lost its traditional safe-haven role, with the yen and euro acting as exit valves for fearful market participants.”

Source: Bloomberg Pro Terminal
Trader-G.Bozhidarov

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