U.S. President Donald Trump loves to trumpet the record run in U.S. stocks.
"Stock market hits another high with spirit and enthusiasm so positive," he tweeted on July 12, in one of nine posts about the market this month. (He was at it again on Monday, exclaiming "Highest Stock Market EVER" in a morning tweet.)
But he's hardly tweeted a word about another, less rosy measure of Mr. Trump's America: the U.S. dollar. The greenback has fallen hard on his watch and currency traders are now betting on even more declines.
Is Mr. Trump necessarily "bad" for the dollar, that global symbol of U.S. economic might? Probably no more than he is "good" for stocks. And you can argue much of the dollar's slide – now the longest in six years – has to do with the vagaries of central-bank policy and interest rates. But more and more, it's the political drama in Washington that is taking centre stage. And there's no better place for investors to express their views about how a country is managing its affairs than the $5.1-trillion-a-day (U.S.) global market for foreign exchange.
Currencies, the medium of exchange that affects all other prices, have traditionally been the purest play on a country's outlook, whether economic or political. The relationship has only grown stronger in an era of quantitative easing, which has distorted the bond and stock markets. And with central banks around the world pushing interest rates to rock-bottom levels, rate differentials are far narrower than they used to be, which has helped make currency traders more attuned to political developments.
To be fair, the greenback has also come under pressure from lacklustre economic data, which weakened the case for higher interest rates in the United States as central banks elsewhere move to tighten. And Mr. Trump, on more than one occasion, has talked about wanting a weaker dollar and complained that its strength is a negative for U.S. manufacturing – a key part of his "America First" agenda.
Yet even here, going against the United States' long-standing "strong dollar" policy – which reached its heyday under former treasury secretary Robert Rubin in the late nineties – so publicly could backfire, according to John Snow, who headed the U.S. Treasury under president George W. Bush.
"Look at how the dollar moved up when it was felt that the Trump election was going to lead to happy days again," said Mr. Snow, now chairman of Cerberus Capital Management. Now, "it looks like the administration's ability to get things done, like infrastructure spending and tax reform and health-care reform, are not being realized."
Take July 20, for instance, when news hit that an investigation of the Trump campaign's ties to Russia expanded to his financial dealings. The dollar immediately sank to an 11-month low. Just two days earlier, the currency slumped after a Republican effort to overhaul health care broke down.
One dollar bear is Mark Haefele, the global chief investment officer at UBS Wealth Management. His favourite trade is to bet on the euro rising against the greenback, and he sees the common currency potentially reaching $1.20 within the next 12 months. Today, the euro surged to $1.1845, the highest since January, 2015.
That's a stunning turnabout from the start of the year, when the seemingly unstoppable dollar pushed the euro to 14-year low of $1.0341.
He's hardly alone. Hedge funds are piling into bearish bets on the dollar, and now have the biggest net short position in four years. The median year-end forecast for the greenback has fallen to $1.14 per euro, the lowest since 2015.
"We're going to see continued weakness in the dollar," said Kristina Hooper, the global market strategist at Invesco. "It is very much a vote of confidence, or lack of confidence, in the U.S. economy."