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| Trump fuels currency war fears with Federal Reserve criticism – business live | Trump fuels currency war fears with Federal Reserve criticism – business live |
| (35 minutes later) | |
| It’s important to emphasise that Trump’s criticism of the Federal Reserve is pretty unusual. | |
| The whole point of central bank independence is that interest rates can rise or fall without political interference. That prevents government from slashing borrowing costs to get a pre-election boom, creating an inflationary spike, forcing rates to go up again, slowing the economy, creating a recession.... | |
| Bart Hordijk, market analyst at Monex Europe, says Trump is acting more like the leader of an emerging market economy when he declares that he’s “not thrilled” by US interest rate rises. | |
| Hordijk writes: | |
| The US dollar sold off across the globe [after Trump’s attack] and the question on every FX trader’s mind is; is the US becoming the new Turkey? | |
| “The answer seems, “no, but....”. The Turkish lira lost almost 30% of its value this year mostly because Turkish President Recep Erdogan is firmly set against higher rates (just like Trump) and is attacking the independence of the central bank (just like Trump). | |
| Erdogan is notorious for criticising Turkey’s central bank, and calling for lower interest rates. Earlier this month he even put his son-in-law in charge of Turkey’s Ministry of Finance and Treasury. | |
| Trump hasn’t reached that point (Jared Kushner has other duties, anyway). Hordijk says: | |
| The big difference however is that the institutions in both countries widely differ and there are miles more of legal obstacles and checks and balances in place before Trump even gets close to have a direct say in the Fed’s interest rate policy. | |
| Additionally Erdogan seems surrounded by a group of yes men, while Trump’s team sometimes still keep him in check, as evidenced by Deputy Press Secretary Sarah Sanders who went into damage control mode after the comments were made and reconfirmed Trump respects the independence of the Fed. | |
| But even so, Trump’s decision to fire a warning shot at the Fed should worry the markets... | |
| After starting a trade war, giving tax hand outs to the rich that will likely blow up the US fiscal deficit and antagonizing NATO allies while befriending despotic leaders, this latest action of Trump further establishes the pattern of his capricious, often short term focus. | |
| That in itself is a scary observation and an understandable reason why the dollar sold off.” | |
| President Trump has set “more cats among even more pigeons” with his comments about interest rates and the dollar yesterday. | President Trump has set “more cats among even more pigeons” with his comments about interest rates and the dollar yesterday. |
| So says Kit Juckes, foreign exchange expert at French bank Société Générale. | So says Kit Juckes, foreign exchange expert at French bank Société Générale. |
| Juckes doesn’t believe the Federal Reserve’s independence is now in doubt. | Juckes doesn’t believe the Federal Reserve’s independence is now in doubt. |
| And as long as [Fed chair] Jay Powell & Co respond to a strong economy and easy fiscal policy with measured policy tightening, they aren’t going to send bond yields or the dollar down on their own. | And as long as [Fed chair] Jay Powell & Co respond to a strong economy and easy fiscal policy with measured policy tightening, they aren’t going to send bond yields or the dollar down on their own. |
| However, he also expects more fireworks if China allows its currency to keep sliding: | However, he also expects more fireworks if China allows its currency to keep sliding: |
| As long as the renminbi is falling in an orderly manner, there is little urgency for the Chinese authorities to counter it. | As long as the renminbi is falling in an orderly manner, there is little urgency for the Chinese authorities to counter it. |
| Whether or not China is wittingly undertaking a depreciation policy, the question will increasingly be on investors’ minds as the slide deepens. And the Trump Administration is unlikely to keep quiet for long either | Whether or not China is wittingly undertaking a depreciation policy, the question will increasingly be on investors’ minds as the slide deepens. And the Trump Administration is unlikely to keep quiet for long either |
| The Trump administration is determined to push down their currency, says Neil Wilson of Markets.com. | The Trump administration is determined to push down their currency, says Neil Wilson of Markets.com. |
| A cheaper dollar would help US companies compete abroad, a key plank of Trump’s attempt to make trade ‘fairer’. | A cheaper dollar would help US companies compete abroad, a key plank of Trump’s attempt to make trade ‘fairer’. |
| Wilson writes: | Wilson writes: |
| A clear pattern is emerging – Donald Trump wants a weaker dollar. Prior to his inauguration he said the dollar was ‘too strong’. Then earlier this year Treasury secretary Mnuchin echoed those comments when he openly questioned the strong dollar policy. | A clear pattern is emerging – Donald Trump wants a weaker dollar. Prior to his inauguration he said the dollar was ‘too strong’. Then earlier this year Treasury secretary Mnuchin echoed those comments when he openly questioned the strong dollar policy. |
| The Mnuchin effect lasted until the middle of April, but since then the dollar has been on the rise again, with the dollar index hitting 95, a level not seen since November last year. | The Mnuchin effect lasted until the middle of April, but since then the dollar has been on the rise again, with the dollar index hitting 95, a level not seen since November last year. |
| When you look at the trade policies he’s pursuing, a weaker dollar makes sense. The only problem is that an all-out trade war, by making dollars scarcer, will force up the greenback against its peers. | When you look at the trade policies he’s pursuing, a weaker dollar makes sense. The only problem is that an all-out trade war, by making dollars scarcer, will force up the greenback against its peers. |
| Trump’s intervention raises the dangers of a full-blown currency war, says Jasper Lawler of London Capital Group. | Trump’s intervention raises the dangers of a full-blown currency war, says Jasper Lawler of London Capital Group. |
| He says China’s response - letting the yuan weaken sharply - is significant. | He says China’s response - letting the yuan weaken sharply - is significant. |
| As Trump moaned about the strength of the dollar, the PBOC devalued the yuan by the most since 2016, sending a chill through the markets. | As Trump moaned about the strength of the dollar, the PBOC devalued the yuan by the most since 2016, sending a chill through the markets. |
| Interpreted as China’s response to the US trade war – the starting of a currency war- risk off is prevailing with traders selling out of equities sending Asian markets and European futures sharply lower. It was only a month ago when China denied that they would start a currency war following Trump’s action. A lot can change in a month under Trump. | Interpreted as China’s response to the US trade war – the starting of a currency war- risk off is prevailing with traders selling out of equities sending Asian markets and European futures sharply lower. It was only a month ago when China denied that they would start a currency war following Trump’s action. A lot can change in a month under Trump. |
| Donald Trump’s criticism of the Fed came after the US dollar hit a one-year high against a basket of other major currencies. | Donald Trump’s criticism of the Fed came after the US dollar hit a one-year high against a basket of other major currencies. |
| The dollar has strengthened thanks to several US interest rate rises, and the prospect of more to come. | The dollar has strengthened thanks to several US interest rate rises, and the prospect of more to come. |
| US interest rates are now 2% - up from just 0.25% after the financial crisis - with the Fed likely to push through two more quarter-point increases this year. | US interest rates are now 2% - up from just 0.25% after the financial crisis - with the Fed likely to push through two more quarter-point increases this year. |
| In contrast, eurozone interest rates are zero, while the UK Bank Rate is just 0.5%. | In contrast, eurozone interest rates are zero, while the UK Bank Rate is just 0.5%. |
| Trump singled out China for particular criticism last night, saying it was letting the yuan drop “like a rock”. | Trump singled out China for particular criticism last night, saying it was letting the yuan drop “like a rock”. |
| So he won’t be pleased by Beijing’s response – the People’s Bank of China let the yuan hit a new one-year low today, fixing the currency at 6.7671 per dollar. | So he won’t be pleased by Beijing’s response – the People’s Bank of China let the yuan hit a new one-year low today, fixing the currency at 6.7671 per dollar. |
| That’s nearly 1% weaker than Thursday’s fix. | That’s nearly 1% weaker than Thursday’s fix. |
| The yuan then tumbled lower in nervous trading, hitting 6.812 to the dollar. That prompted a reaction; Chinese banks began buying the yuan and selling dollars, apparently in an attempt to prop the currency up. | The yuan then tumbled lower in nervous trading, hitting 6.812 to the dollar. That prompted a reaction; Chinese banks began buying the yuan and selling dollars, apparently in an attempt to prop the currency up. |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| With trade war fears mounting and Brexit looming, investors already have plenty to worry about. But Donald Trump has added a new anxiety -- currency wars. | With trade war fears mounting and Brexit looming, investors already have plenty to worry about. But Donald Trump has added a new anxiety -- currency wars. |
| Overnight, the US president launched a rare attack on America’s central bankers, revealing that he wasn’t happy with their plans to raise US interest rates. | Overnight, the US president launched a rare attack on America’s central bankers, revealing that he wasn’t happy with their plans to raise US interest rates. |
| Trump claimed that the Federal Reserve risked undermining all his good work strengthening the economy. He told CNBC that higher borrowing costs would drive up the dollar, especially as other central banks are keeping policy loose. | Trump claimed that the Federal Reserve risked undermining all his good work strengthening the economy. He told CNBC that higher borrowing costs would drive up the dollar, especially as other central banks are keeping policy loose. |
| “I don’t really — I am not happy about it.” | “I don’t really — I am not happy about it.” |
| “I don’t like all of this work that we’re putting into the economy and then I see rates going up.” | “I don’t like all of this work that we’re putting into the economy and then I see rates going up.” |
| You could almost hear Fed chair Jerome Powell’s eyebrows rising sharply as Trump’s comments hit the wires. Central bank independence is a serious issue - policymakers are meant to navigate the economic squalls and storms free from political interference. | You could almost hear Fed chair Jerome Powell’s eyebrows rising sharply as Trump’s comments hit the wires. Central bank independence is a serious issue - policymakers are meant to navigate the economic squalls and storms free from political interference. |
| But Trump clearly doesn’t play by the rules, so traders now have to calculate whether White House pressure is going to influence the path of interest rates. And if so, is that going to set off a currency war? | But Trump clearly doesn’t play by the rules, so traders now have to calculate whether White House pressure is going to influence the path of interest rates. And if so, is that going to set off a currency war? |
| Powell may feel Trump’s criticism is particularly misplaced, as the president’s tax-cutting agenda is putting pressure on the Fed to act, to prevent a dangerous inflationary bubble. | Powell may feel Trump’s criticism is particularly misplaced, as the president’s tax-cutting agenda is putting pressure on the Fed to act, to prevent a dangerous inflationary bubble. |
| Trump insisted that Powell was a “very good man”, but even so the president “wasn’t thrilled” about the prospect of further interest rate hikes. | Trump insisted that Powell was a “very good man”, but even so the president “wasn’t thrilled” about the prospect of further interest rate hikes. |
| The White House tried to row back on Trump’s comments, insisting that he respected the independence of the Fed. But still, his intervention hit the markets, as CNBC explains: | The White House tried to row back on Trump’s comments, insisting that he respected the independence of the Fed. But still, his intervention hit the markets, as CNBC explains: |
| Financial markets across the globe whipsawed on Trump’s comments. | Financial markets across the globe whipsawed on Trump’s comments. |
| The dollar index, which tracks the dollar’s performance against a basket of six other currencies, fell from a one-year high and traded just below breakeven. U.S. equities edged off their session lows, but remained lower on the day. | The dollar index, which tracks the dollar’s performance against a basket of six other currencies, fell from a one-year high and traded just below breakeven. U.S. equities edged off their session lows, but remained lower on the day. |
| Also coming up today | Also coming up today |
| June’s UK public finances are released this morning. The City predicts that Britain borrowed around £5bn to balance the books last month, much the same as in May. | June’s UK public finances are released this morning. The City predicts that Britain borrowed around £5bn to balance the books last month, much the same as in May. |
| 9.30am BST: UK public finances for June | 9.30am BST: UK public finances for June |
| 1.30pm BST: Canadian inflation figures | 1.30pm BST: Canadian inflation figures |