The U.S. president’s criticism of the central bank’s policy sent EUR/USD back to the middle-term range of 1.15-1.185

If Donald Trump didn’t exist he should have been created. The U.S. president’s comments enrich the Forex life. His criticism of Jerome Powell resulted in a sharp surge of EURUSD. When the White House leader was appointing a lawyer as the Fed’s chairman, Donald Trump was sure he should have been dovish. In fact, it turned out that the Federal Reserve is hiking the intersect rate faster than it did with Janet Yellen. It is not the best for Donald Trump, who is running trade wars with other countries, seeking to win.

In the early 1990s, George Bush blamed Alan Greenspan for his electoral loss; because the latter hadn’t held the rate low enough, so that the U.S. economy would have pleased everybody. History has witnessed the cases when the Fed brought the USA into recession by increasing the rate too fast. According to Wall Street Journal experts, the U.S. economy is growing more likely to slide into recession in 2020; and that is when Donald Trump will have to be re-elected as the U.S. president. He, himself, doesn’t doubt in his victory; although the situation is getting hotter already now.

The dissent between the White House and the Federal Reserve erupted a long time ago. The first one doesn’t suggest the tax reform result in the inflation rate increase, supporting the long-term economic expansion.

The central bank, on the contrary, believes the fiscal stimulus effect will be temporary and the inflation growth is going to speed up in future. This point of view suggests four hikes of the Federal funds rate in 2018. Donald Trump seems to hope that the Fed will stop at two increases. Although the Fed is independent and Jerome Powell's term of office can’t end earlier than in four years, the derivative market lowered the probability of four monetary restrictions in 2018 down to 63%, from 70%. Donald Trump’s comments have greatly contributed to this process.

That is the U.S. president, who forced, by his words, hedge funds to take the profits for U.S. dollar positions. The net longs for teh U.S. dollar to major global currencies were up at $30.8 billion for the week, ending August 13, which is the highest level since 2015.

Dynamics of U.S. dollar speculative positions and USD rate

Source: Financial Times

If the market believes that the Fed won’t stick to its course and will put off increasing its rate, dollar is going to be down. It was like that in 2015 because of China. It was like that in 2016 because of Brexit. Now, it is hard to think of a reason, as nobody doubts in the U.S. economy’s strength. It is only may result from the U.S. yield curve drop down to the lowest level since 2007. The indicator quite accurately predicts recessions, why don’t they pay attention to it? Anyway, investors will look for some hawkish signs in the minutes of the latest FOMC meeting and in the Jerome Powell’s speech in Jackson Hole. If they see something of this kind, euro can be up above the critical level of $1.165, being the evidence of the false breakout of the trading range of $1.15-1.185 bottom border. On the other hand, if the Fed’s chairman is confident in its monetary policy, everything will go back to the way it was, drawing EURUSD down.


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Price chart of EURUSD in real time mode

Dollar Broke the Fed and the White House Up

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