There is just too much economic confusion in the latest tweet from Trump to even begin to explain it, so we will just point out that moments ago Trump, in this case definitely not under the advice of Larry Kudlow, accused China and Russia of “playing the currency devaluation game”, at a time of rising interest rates, which Trump slammed as “not acceptable.”
Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!
— Donald J. Trump (@realDonaldTrump) April 16, 2018
Without going too deep – as we would never get out – it is worth noting three things.
First: in the Treasury’s just released report on FX manipulation, neither China nor Russia were accused of devaluing their currencies. If Trump has a problem with Beijing’s or Moscow’s FX policies, he should probably first instruct his treasury.
Second, both currencies have been strengthening for over two years, and only saw a modest loss in value just very recently.
Third, the only reason Russia is “playing the devaluation game” is because of the sanctions Trump unleashed on Russia last week which sent both the ruble, and Russian assets crashing. If anything, Moscow wants a stronger Ruble to avoid having to raise rates even higher. As for China, while it may want a weaker yuan to boost exports, it will surely come as news to Beijing that it is devaluing the currency, which is trading at the strongest level against the dollar since the August 2015 devaluation, as a result of – drumroll – the weaker dollar. In fact, the weaker the dollar, the stronger the Yuan.
Meanwhile, the biggest irony is what Trump himself told the WSJ exactly one year ago: “I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me.”
Maybe if Trump wants stronger foreign currencies – i.e. a weaker dollar – he should just make sure people have “less confidence” in him? That, or more likely, he will start attacking Jay Powell in his morning tweets, demanding the Fed stop hiking rates.
While there was initially no response in the FX complex, the Bloomberg Dollar Index has slid to session lows shortly after the tweet.