SINGAPORE (April 13): Will the real Donald Trump please stand up? In an interview with the Wall Street Journal Wednesday, President Trump (the one who said the Chinese were “grand champions of currency manipulation”) said: “They’re not currency manipulators.” And of course, we haven’t heard anything lately about the Chinese “raping” the US commercially either.

But what threw the US dollar overnight was President Trump’s comment that the greenback was too strong – and oh, it’s because people love him so much, by the way – that it was damaging the economy.

“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting – that will hurt ultimately. It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency,” he said.

He left open the possibility of reappointing Janet Yellen as Chair of the Federal Reserve, saying “I like her, I respect her”. And by the way, he also said: "I do like a low-interest rate policy, I must be honest with you." Well, not that long ago, during the Presidential election campaign, Donald Trump repeatedly criticized Yellen for keeping rates too low. In one outburst September last year, he said Ms. Yellen was “political” and should be “ashamed” of what she was doing.

Will the real Donald Trump stand up?

The point is you cannot invest on President Trump’s quirks and quips. He could just as well say something else tomorrow.

Yes, the US Dollar Index (DXY) took a dive overnight. But the DXY was vulnerable anyway from:

  1. The divergence since early March between a strengthening dollar and a trend of economic data disappointments as reflected in the US economic surprise index;
  2. The very recent surge in the yen from safe haven buying; and
  3. A decline US Treasury yields on the same safe haven buying.
The bottom line is this: Yes, the President’s comments do matter to the dollar, but only in the very short term. Eventually, it’s not what he says but what he does that really matters. And the markets would know he says a lot of stuff – a lot of contradictory stuff. So this will pass.

What is more important is the economy continues to strengthen. But not in a straight line. Not in a runaway, robust manner. And so the recent loss of upward momentum is restraining the rise of the dollar.

However, eventually, it will likely push higher because:

  1. Even if rates rise slowly in the US, where else are rates going up?
  2. When the Fed starts to shrink its balance sheet, US Treasury yields will be the tail wagging the rates dog.
  3. Any one of Donald Trump’s promised policies – tax cuts, offshore corporate profit repatriation, a border adjustment tax – would be bullish for the dollar.
But it won’t be an easy upward ride.

  1. President Trump’s policy flip-flops will keep markets off balance.
  2. The dollar started its Trump ascent off relatively high levels – way above where it was at the start of the 1970s Dollar Bull.
  3. Capital inflows are important to the value of a currency.
A toppish US stock market will make further gains in the dollar hard fought and yes, risky.

Lim Say Boon is Chief Investment Officer of DBS Bank