Posted by on February 11, 2017 8:25 am
Tags: , , , , , , , , , , , , , , , , , , , , ,
Categories: Alpha Alternative currencies Bitcoin Business China Citigroup Climate change skepticism and denial Cryptocurrencies Currency Currency intervention Department of the Treasury donald trump Economy Exchange rate Foreign exchange market japan Japanese government Treasury Department Trump Administration Willem Buiter WWE Hall of Fame Yen

Trump met with Shinzo Abe friday, the famous inflationist Prime Minister of Japan.  The issue in question is if Trump will label Japan a ‘currency manipulator’ – whatever that means.  It seems to be the equivalent of ‘Currency Headwinds’ in publicly traded companies.  Because, every currency is manipulated!  The only currency in use today that’s not manipulated, is Bitcoin and the Bitcoin alternatives (Author’s note: Bitcoin is actually really useful, try it here).  From Bloomberg:

President Donald Trump vowed Friday that the currencies of the U.S., China and Japan would soon be on “a level playing field,” a day after a phone call with China’s president, Xi Jinping.

The two leaders, Trump said in a news conference with Japanese Prime Minister Shinzo Abe, “discussed a lot of subjects. It was a long talk.  “As far as the currency devaluations, I have been complaining about that for a very long time,” he said.

Trump promised as a presidential candidate that he would have the Treasury Department declare China a currency manipulator on his first day in office. Three weeks into his presidency, that has yet to happen. Last week, he accused Japan of manipulating the yen, a charge Abe and other Japanese government officials have denied.  Trump did not explain how the three countries would reach a level playing field, or what he meant by the phrase.

What is ‘a level playing field’ ?  Sounds good, but what does it mean – if anything?  In FX, it means nothing (because, what is ‘level’ ?  It’s all relative.  A cheap currency is a trade advantage, but these distinctions need to be made clear for traders.

The Yen was up a little on the day, but movement was really sideways – the market was looking for a ‘big’ statement.  They were watching.  In fact, no one in FX has ever watched a President like Trump.  He has accused many countries of being currency manipulators and the market waits for an action (such as an EO) or a statement.  Trump could be the biggest FX market mover of our generation.  

When FX markets were ‘manipulated’ (this was a misleading description of the case, what they did was manipulate the price FOR THEIR CUSTOMERS – it’s impossible to manipulate the FX market it’s too big) many said that it was impossible to manipulate FX markets, and this is generally true.  However, central bankers like Mario Draghi can make a statement and the EUR/USD can move by 200 pips in a tick.   Trump may have a larger effect on FX, although we haven’t seen something like a 200 pip spike on an announcement.  We have seen it in the stock market, when Trump tweets stocks move.  During the elections and a little post election we’ve seen it in USD/MXN – the Mexican Peso.

A Citi strategist said all this talk is ‘hot air’:

Hogwash. Hot air.

That’s what Willem Buiter, chief economist at Citigroup Inc., makes of the Trump administration’s comments on exchange rates. The world’s largest foreign-exchange trading firm sees the dollar rising this year even as the president talks the greenback down and blasts some of the nation’s biggest trading partners for currency manipulation.

“This is all basically hogwash,” Buiter said in an interview on Bloomberg Television, referring to Trump’s criticism of China and Japan on their exchange rates. “All this currency-manipulator talk is, I think, basically hot air.”

Wow – thank you Willem for clearing that up, now it is clear for investors.. it’s just ‘hot air’ – now we can make better decisions about FX.

For a primer on how to manage ‘The Trump Call’ on FX, checkout this book Splitting Pennies.  If you need some Alpha in your portfolio checkout this Options program.

Leave a Reply

Your email address will not be published. Required fields are marked *