SINGAPORE (Aug 26): US President Donald Trump urged the US Federal Reserve this past week to cut interest rates by at least 100 basis points and pursue quantitative easing. With the 2020 US presidential election on the horizon, Trump has a strong incentive to browbeat the Fed into keeping monetary policy as loose as possible and stave off any hint of an economic slowdown in the US. For equally self-serving reasons, I hope the Fed ignores Trump.

More than a year ago, I began holding much of the cash in my investment portfolios in the form of US dollars, because of the relatively high interest rates they offered. The risk I faced is that the Singapore dollar, as a matter of policy, is kept on an appreciating path versus a trade-weighted basket of currencies. But I figured that the relative strength of the US economy would keep the greenback firm against most major currencies, and that the Singapore dollar would probably display a weakening bias against it.

Things worked out quite well until late last year, when the Fed turned sharply dovish. The US dollar immediately weakened, and my US dollar deposits began getting rolled over at lower interest rates. Fortunately for me, there has since been a broad loosening of monetary policy around the world amid signs of slowing growth, fuelled in part by the US-China trade war. That has spurred a rebound in the US dollar, though interest rates on my holdings of US dollars have continued falling.

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