It is the Central Banks that run the show when it comes to driving the currency markets and Donald Trump.
It is the Central Banks job to ensure that their economy is performing well so any action they take will have a major impact on their currency.
Their main tools they use are interest rates, money printing and asset purchases. They use these tools to either stimulate or slow down their economy and this action will impact their currencies. It’s a cause and effect.
If for example the US economy is performing well, showing a high growth rate (not too high), strong employment and stable inflation (around 2%) this should in theory be good for the US dollar and the FED won’t get too involved.
However they will review the many economic reports that come out every week and based on this data (positive or negative) they will take whatever action they see necessary to keep their economy strong.
At times of economic stagnation or financial crises they will bring out the big guns by reducing interest rates to zero, printing trillions of dollars and purchasing every corporate bond that moves in an effort to stimulate their economy.
The FED, the European Central Bank and the Bank of Japan have being taking these actions for years now. A zero interest rate policy which should mean weak currencies across the board which is not always the case.
The reason for this is that if interest rates are low the country will not attract investment so the demand for that currency falls and its value will drop.
The reality of all of this is that no Central Bank wants to be seen to be directly manipulating their currency even though this is what is actually happening as a result of their actions.
A weak currency helps a countries export market and this is the one of the hidden motivations behind these central banks actions.
All of this is slowly changing as Central Banks are currently in the process of raising interest rates by miniscule amounts and/or reducing their bond purchases.
They are doing this even though they have not achieved their goals, as inflation and growth rates are still dragging along the floor across the US, the Euro Zone and Japan. Maybe they need these tools for the next crash!
No one sent the MEMO to Donald Trump about manipulating their currency. He is openly weakening the US dollar with his recent threats of a global trade war.
It seems to be a Trump strategy to keep the dollar down to counter the FED’s future interest rate hikes to help the export market in the USA.
The “Donald” however needs to understand that other countries won’t just lie down and allow the USA economy get all the benefits of a weak currency.
Mario Draghi of the ECB is surely planning his next move to weaken the Euro and counter the Trumps blatant currency manipulation tactics.
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