Yahoo Finance Trump versus Iran, the FED and the Greenback
As the U.S celebrated Independence Day, the U.S President will have enjoyed the military show of force that has not been laid out in our generation at least.
While some may have balked at the spectacle, there is a reality to Trump’s presidency. Since taking office, Trump has been quite successfully crossing off his campaign pledges.
As far as U.S voters are concerned and voters in any election around the world, it’s an almost rarity that so many promises are kept.
Going into office, many had said that Trump would only be able to push his agenda within the 1st hundred days, yet he keeps going.
Iran
One of the U.S President’s pet peeves was certainly the 2015 nuclear agreement. As promised, the U.S withdrew from the agreement last year and quickly reintroduced sanctions to cripple the Iranian economy.
Having brought down ISIS and delivered some stability within the Middle East, Iran remains the red flag for the U.S, the Saudis, and Israel.
The introduction of sanctions has hit Iran hard and perhaps as intended, has led to increased tension between the 2 nations.
Trump recently came close to taking military action in response to the downing of a drone. The latest talk is of Iranian breaching its uranium limits. The limits wouldn’t be in breach of any agreements with the U.S, but with the remaining 6 nations. If Iran had played this a little smarter, they would have attempted to keep on the right side of the remaining 6. A breach would ultimately give the likes of the EU an easy get out from a difficult situation.
Whether there will be any military action remains to be seen. Trump has enough military might in the region to respond to any material threats. And, with the lack of a relationship with the Iranian government, there’s unlikely to be much, except other Western leaders, to hold him back.
Crude oil prices and the Dollar would benefit, however, and that would certainly rile a president desperate for cheap oil and a weak Greenback.
The FED
Going onto the Greenback, the U.S President may also get his wish on the monetary policy front. Nonfarm payroll figures due out later today could set the tone for the end of the month FOMC meeting.
For now, the markets have priced in a rate hike, but the numbers will need to support it. If the FED does cut rates, however, it’s not because of Trump’s demands and threats of removing FED Chair Powell. The FED would almost certainly cite the U.S – China trade war as the cause.
As the presidential campaigns kick off, there does appear to be very little competition for Trump. The tables could turn, however, if there is a longer lasting slowdown in the U.S economy.
The FED’s focus on the jobs market will be aligned with that of the U.S administration. After all, if voters are working there’s unlikely to be too much of a backlash to a fledgling economy.
It will be interesting to see how much progress is made on trade talks through to the year-end. While the U.S administration claims to be close, the on and off negotiations do suggest that there are some stumbling blocks.
One, in particular, is Huawei. It’s unlikely that Beijing will get to the finish line without the U.S changing stance. Allowing Huawei to continue purchasing from U.S companies just isn’t going to cut it…
For the Dollar
There’s been plenty of chatter on whether the Dollar can materially weaken. While Trump has once again called China and the EU currency manipulators, the very uncertainty over the global economy and rising geopolitical risk would support demand for the Greenback.
With the U.S trade deficit, Trump’s push to bring down the mighty Dollar has some logic to it. If foreign goods become too expensive, U.S manufactured goods should become more price competitive. The Dollar would need to really tank, however, for U.S goods to be able to compete, tariffs or not.
At the time of writing, the Greenback was down 0.04% to $96.718. Trump will be hoping of a big slide later today. Better than expected numbers would not only give the Dollar a boost but would also see his beloved equity markets take a hammering.
There’s always Iran and China and the currency manipulators, however, to provide a distraction.
This article was originally posted on FX Empire
