The US Dollar plunges to four year lows on “sell America” trade

The crisis of confidence in the US Dollar has gathered pace, with the US Dollar Index hitting a four year low. The markets are responding to US President Trump’s erratic behaviour and policymaking, reigniting the so-called “sell America” trade. Fundamentally, the on again off again tariffs on trading partners, threats against public officials at the Fed, hair-brained fiscal policy, and overall capriciousness in trade policy, foreign policy and economic policy has pushed market participants over the edge. Intervention in the Yen is also one factor driving the move. But the sell-off is broad-based, signalling a Dollar centric story.

Whether this is a market tapping out for the rest of Trump’s term or a permanent rupture is a matter of debate. However, it’s abundantly clear the markets are trying to manage the risks presented by Trump. The “sell America” and “de-Dollarisation” trade was compounded after President Trump said he wasn’t worried about the drop in the Dollar. One thing that often reassures market participants is that Trump has proven himself sensitive to market signals – it’s the bedrock of the so-called TACO trade. The fact that the US President hasn’t gotten the signal yet suggests that he is not in the mindset to reverse course and fix the underlying issues.

The US Dollar plunges as commodities rise and stocks lift

Ultimately, while the US Dollar was the locus of the move last night, it has bled into other areas of the market. Precious metals are surging. Partially, that’s a mechanical function of being priced in US Dollars. However, there’s also a TINA trade happening with gold: There Is No Alternative when it comes to a store of value in this environment. However, other metals prices are also rising, partially because of the depreciating Dollar, partially as there’s a push to gain exposure to scarce assets. Wall Street is also getting a nudge higher from the weaker Dollar. US equities at the margins are enjoying the boost to profits from a falling currencies, with the flipside weighing on stocks in Europe and elsewhere.

(Source: Trading View)
(Past performance is not a reliable indicator of future results)