Diminishing Dollar Swings Since Trump Became a Market Factor

August 21, 2019

Since emerging on the geopolitical stage as a candidate for U.S. president around mid-2015, Donald Trump has personified uncertainty in style and substance. He is a leader without equal in generating event risk for market players. There’s a lot of money to be made from making money in the market only if one had advance warning about what the president tweets. With so much chaos on top of the normal uncertainty surrounding economic trends and policy changes, it would not be surprising to experience widening swings in key dollar relationships.

But from one standpoint, just the opposite has occurred. The widths of the dollar’s high-low ranges in the year since August 21, 2018 were 7.1% against the euro ($1.1028 to $1.1816), 9.3% in the case of the Yen (JPY 114.55 to 104.80), and 11.3% relative to sterling ($1.2015 to 1.3378). For EUR/USD, the 7.1% band over the last twelve months is smaller than the 11.1% high/low corridor in the year ending on August 21, 2018. The high/low range in the 52 weeks through August 21, 2017 was wider still at 15.2%, while that during the year to August 21, 2016 of 11.3% was also wider than over the most recent one-year period.

For dollar/yen, the high/low range widths narrowed progressively from 25.0% in the year to August 21, 2016 to 18.7 in the following year to August 21, 2017, 9.7% in the year to August 21, 2018 and 9.3% in the twelve months through August 21, 2019. Likewise, there was a progressively narrower high/low range in sterling against the dollar from 23.6% in the year to August 21, 2016 to 19.9% one year later, 13.6% in the 52 weeks through August 21, 2018 and 11.3% over the past twelve months ending today.

Of the many possible explanations for the lessening dispersion of dollar values, I offer one. The chaos that President Trump is inflicting on world financial markets is so pervasive and exhausting to market psychology that investors have become gun shy about adopting and sticking to a long-term view. That deprives markets of the oxygen needed to sustain long one-way shifts in currency values. This same explanation also could apply to why the big U.S. corporate tax cut of early 2017 led to only a brief rise in business capital investment.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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