Cool Video: Bloomberg Television - Dollar Outlook

Includes: UDN, USDU, UUP
by: Marc Chandler

Trump's comments effectively deterred a dollar breakout.

Mnuchin tried walking Trump's comments back.

Fed funds futures implied rates have edged higher, shrugging off Trump's criticism, while the dollar is consolidating the losses from the end of last week.

I had the privilege to join Alix Steel, the Bloomberg anchor, and Laird Landmann from TCW on the set earlier today. Here is the video of the 2.5-minute clip:

The issue is the dollar's outlook. The greenback had looked to be on the verge of breaking out higher before the US President expressed disapproval with the Fed rate hikes and, then the following day, aggressively accused the EU and China of manipulating their currencies.

Laird and I were largely in agreement. The G20 statement recognized many of the risks to the world economy and the US. He anticipates a turn in the data. I have been tracking a growing number of late-cycle indicators (and note that interest rate sensitive sector like housing is showing some strain, perhaps as interest rates climb, existing home sales fell each month in Q2, as did building permits).

We noted Mnuchin's attempt to walk back what had seemed to many to be Trump's jawboning of the Fed and trying to talk the dollar down. The market was never persuaded that Trump's displeasure about rising interest rates would impact Fed policy. To the extent that the Fed funds futures strip has changed, it implies higher rather than lower rates. On the other hand, the dollar is lower. I suspect the short-term momentum players got caught leading the wrong way, and the net result is to reinforce range-trading. Still, going forward, market participants have to recognize the risk of more of these type comments, which may mean little in the greater scheme of things, but could inject extra short-term volatility.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.