At the meetings of Group of 20 financial leaders, the Trump administration rejected a statement from other leading economies signalling the administration’s more combative approach. The statement was regarding the warning against the perils of trade protectionism. This leaves the allies and the traditional partners guessing about what the US policy will be going forward.
As a reaction to this, the dollar fell for the fourth day on Monday against the basket of currencies. The dollar index .DXY was down by 0.3 percent in Asian and early European trading, though it recovered some ground later and ended that day at 100.19, just 0.1 percent weaker.
Earlier also, President Trump had voiced his concerns over the currency manipulation, but then it was thought to be aimed only at China and Japan. In fact, he made opposition to free trade the basis of his presidential campaign and shortly after assuming office he pulled out the country of a sweeping Asia trade deal. Taking his aim at Mexico and China, he has threatened to take corrective measures on tariffs as he accuses these countries of taking unfair advantages in their trade relationships with the US.
The head of global market research with Bank of New York Mellon in London, Simon Derrick said, “If they are going to push on trade, then you have to expect that the U.S. will want to talk to its major trade partners about where it feels there is unfairness in the relationships. None of us knows, but it gives me a hint that if there is a belief in the U.S. that some nations have manipulated their currencies then they will be looking at ways of addressing that (and) that would be aiming at a weaker dollar.“
For the past many years, the US has been in forefront rallying with other nations to the cause of free trade. There had been a common language in the communique that normally follows the meetings of the economic ministers of various countries and the central banks. It is for the first time that the US has deviated from its course at G20 meeting.
So far, there was an understanding that dollar will be supported by new tax reforms and taxation on imports, but now a number of US banks have started doubting it. They believe that tax reforms might be delayed as Trump has given priority to repealing Obamacare. They are also of the opinion that even if the tax reforms comes it will be in a form that will hardly have any noteworthy impact on the dollar.