With his radical policies, unpredictable behavior and frequent backflips, US President Donald Trump has introduced uncertainty into the international forex market, effectively manipulating the exchange rate of the US dollar, claims Guan Tao, a senior researcher with the China Finance 40 Forum in a piece for yicai.com. He says China’s forex market will not be swayed in the long run.
Remarks on the exchange rate made by Trump and their impact on the forex market are four-fold, Guan contends. The president commented on the US dollar’s exchange rate to directly impact the trend of US dollar index; criticized the Federal Reserve for hiking interest rates in order to tame the strong dollar; enacted trade protectionism; and, more directly, made public comments on other major currencies.
When Trump threatened to increase tariffs on steel and aluminum imports from Canada, Mexico and the EU, the US Dollar index dropped 0.8 percent and 0.12 percent successively, Guan notes. He contends that Trump has gone against the political tradition, sowing uncertainties and magnifying market swings.
The Chinese Yuan is among the currencies affected, because it is pegged to a basket of currencies including the US dollar, and the trade friction between China and the US is intensifying. But the impact will be short-term, Guan argues. In the medium to long run, the trend of the RMB exchange rate will be determined by the performance of economic fundamentals, so market players need to be patient, adaptive and tolerant of exchange rate swings.
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