Despite the U.S. dollar’s robust rise over the past few months, there are some signs that this rally might be fading.
Wells Fargo currency strategist Nick Bennenbroek lays out his main thesis in an interview with CNBC, saying the U.S. is well ahead in terms of growth and they’re doing extremely well.
“Eventually, these foreign economies I think are going to catch up and some of this fiscal stimulus will eventually fade, so that gap’s going to close and these foreign currencies are going to strengthen over time,” Bennenbroek said.
On Monday, U.S. President Donald Trump announced that he had closed a trade deal with Mexico to replace NAFTA. News of the deal helped fuel the Mexican peso’s nearly 2% rise this week against the dollar. The Canadian dollar also advanced this week, although reports indicate that a U.S.-Canada deal has not yet been finalized, despite Canada’s aim to arrive at a deal by the end of Friday.
Related: Dollar’s Gains Could be Limited From Here
In a July tweet, Trump took aim at China and the European Union for alleged currency and interest rate manipulation, claiming such actions unfairly boost the dollar and reduce the U.S.’s “competitive edge” in international trade.
China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge. As usual, not a level playing field…
— Donald J. Trump (@realDonaldTrump) July 20, 2018
In a follow-up tweet, Trump indirectly attacked the Fed for raising interest rates, a move he claims “hurts all that we have done.” Since then, Trump has made further comments criticizing recent rate hikes and even Fed Chairman Jerome Powell himself.
….The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates – Really?
— Donald J. Trump (@realDonaldTrump) July 20, 2018
Although the US is well underway on its rate tightening cycle and balance sheet unwinding, there are signs other major central banks may soon follow suit.
Earlier this month, the Bank of England raised interest rates to 0.75%, which was their second hike since the 2008 financial crisis. In a similar move, the European Central Bank announced in June that they would likely halt new bond purchases at the end of 2018.
For more news on the dollar, visit our U.S. Dollar category.