Donald vs. the dollar: Red lines approaching

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  Martin Raab
  Investment-Stratege

Once upon a time, there was a great country that printed “In God We Trust” on its banknotes and lived well for a long time with the rest of the world having great confidence in its own currency. This has changed somewhat since the president began to question the independence of the central bank on a daily basis. As a self-proclaimed economic guru and passionate Fed basher, President Trump gives himself the authority to do so.

Without question, interest rates in the US dollar are anything but low, but the decision-making authority lies with the entire central bank committee. That’s it. Meanwhile, Jerome Powell, Chairman of the US Federal Reserve Board, is already considered a superstar: no one has ever held out against daily attacks with his rigid interest rate policy for so long. And no one has ever received a spontaneous standing ovation at the annual central bankers’ meeting in Portugal. At the same time, the US dollar is still being applauded as a global reserve currency – investors’ trust in God remains unshakeable.

However, the independence principle of central banks in “first world countries” is now becoming problematic. If investors worldwide gain the impression that the world’s largest economy will in future decide its highly regarded monetary policy on the whim of the day, by tweet or golf tournament, confidence in the dollar will become a question of humor – and not of stability. Neither a government nor the investment community has any serious interest in this. And does President Trump really want to snatch the dollar’s crown as the world’s number one currency? Well, the dollar is like an old, grumpy sheriff in a western movie: it limps, it sometimes misses the mark – but in the end nobody dares to replace it anyway. But when the sheriff starts shooting at his own horse (calling it “Jerome”), even the billionaire saloon audience gets too nervous. The “red line” would then be crossed.