Strong Dollar?
Treasury Secretary Bessent favors a “strong dollar.” He works for a president who has said he wants a weaker dollar. With a single chart, we examine what markets are saying.
The chart below compares the movement in US Dollar Index during Trump 1.0 and so far in Trump 2.0. The adage deeming a picture worth a thousand words is correct for the moment.
I will repeat sage advice: No one can predict the future.
That said, it appears the market reaction to Trump 2.0 is quite different than it was with Trump 1.0. We discussed that in our extended Sunday missive about CDS and gold. Well, the steepness of the CDS curve corresponds with the steepness of the US Treasury yield curve. This chart shows the US dollar and the US 10-yr T-note yield. If we used the 30-yr bond yield, the picture would be even more dramatic.
Kotok View
I believe that market-based prices are far superior indicators to opinions articulated by talking heads (including me). Opinions and estimates are one thing. Market prices are set by a real money buyer and a real money seller. They may end up wrong, but they are my preferred indicator.
The chart speaks for itself. The Trump 2.0 US dollar weakness and corresponding rising US Treasury note yield, and bond yield, show interest rate pressures brought on by foreign market agents (not US). That dynamic is apparent in the trends we see in the chart. With the present budget outlook deteriorating and the present political behavior in Washington, there is no reason to expect either of these trends to change.
Further Reading
“The White House says it wants a strong US dollar. Investors are still keeping their distance” | Yahoo! Finance,
https://finance.yahoo.com/news/the-white-house-says-it-wants-a-strong-us-dollar-investors-are-still-keeping-their-distance-140014369.html
David values thoughtful, reasoned, constructive responses from readers. To contact him, please send an email. The subject line should read “Response to [title of commentary].”
The complete Kotok Report archive can be found at www.kotokreport.com.