A U.S. President’s Attitude Toward the Dollar Can Indeed Influence its Performance

February 12, 2020

As a candidate for president and since stepping into that job, Donald Trump has disparaged virtually every aspect of his predecessor’s record including how he handled the economy. And while touting his own record, the U.S. economic performance of the past three years has looked like an extension of the Obama stewardship in several respects.

  • Real GDP grew 2.5% per annum under Trump between end-2016 and end-2019, matching the average growth during Obama’s combined two terms.
  • Non-farm payroll jobs have expanded 1.5% per annum over the past three years, which is faster than the 1.0% under Obama. However, that difference is distorted by the Great Recession Obama inherited. The U.S. lost 2.66 million jobs in the second half of 2008 and 3.82 million jobs in the first half of 2009.
  • Consumer price inflation in the Trump era of 2.0% per year has been a touch higher than 1.7% in Obama’s stewardship.
  • Both periods saw prolonged and significant appreciation in equity prices. The DOW climbed 12.1% per anum over Obama’s eight years and 13.8% per annum since Trump became president.

President Trump has whined harshly and often about other governments keeping their currencies overvalued against the dollar. More consistently than any of his predecessors, moreover, Trump has elevated the goal of reducing the U.S. trade deficit to the top of his economic policy priorities. If what politicians said made no lasting effect on how markets perform, one might expect the dollar to have behaved similarly during the Obama and Trump presidencies. Instead, the dollar appreciated on Obama’s watch by 2.4% per annum against the euro and 3.0% per annum versus the yen while sliding during the Trump presidency by 0.5% per year against the euro and 1.3% per year vis-a-vis the yen.

That’s not to say that the performance of U.S. vital economic signs is irrelevant to the dollar. Far from it. In the eight-year presidency of George W. Bush, jobs and GDP expanded 0.1% per year and 1.8% per year, and the DOW on balance fell at a rate of 3.5% per year. U.S. CPI inflation of 2.4% on average was also higher then than under Obama or Trump, and the dollar reflected these trends, falling 4.1% a year versus the euro and 3.1% per year relative to the yen.

Under Trump, the dollar has settled into a middle ground between its performance during the presidencies of Obama and Bush45, buoyed by the sound U.S. economic performance but whose strength had been held in check by the president’s use of the bully pulpit. If Trump wins this year’s election, he seems liable to escalate efforts to depress the dollar. If a Democrat from the progressive wing of the party becomes president, they will push for policies and send verbal signals likely to weaken the dollar. It’s less clear what happens should a moderate Democrat get elected, but odds would seemingly favor a stronger dollar performance than under the two other political possibilities.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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