Trump attacks against the Fed hurt the dollar and increase the price of gold

In the meantime, the real drama is all about the US dollar – which is down 10.83% compared to foreign currencies on the Doxy index to date, and would probably be deteriorated as the Fed reduces interest rates on the debt labeled in dollars.

Investors sell the dollar in part due to President Trump’s attacks on the Fed. If the Fed ceases to be independent of political interference, its credibility as a source of solid monetary policy will be compromised, analysts have warned several times. This will make the dollar a less reliable reserve currency – and it already leads investors to cover themselves against American assets, according to Deutsche Bank.

The dollar has put such a low performance this year that it began to injure foreign investors in American assets. Foreigners hold 19% of American shares, according to research by Deutsche Bank. The S&P 500 increased by 12% over a year, but any foreigner will have experienced more than 10% of this Rabouti dollars value during the same period by the downstream value of the greenback.

The result, George Saravelos of Deutsche Bank, said that in a research note earlier this week, are foreign investors are now hiding more and more against the dollar when buying American shares.

“The results are austere: for the first time this decade, the entrances covered in America now dominate an unwanted exposure,” he said. “The change is exceptionally striking in the shares … More than 80% of the entries are now covered.”

The coverage is bad for the dollar because “for each covered dollar asset which is purchased, an equivalent amount of currency is sold to eliminate the FX risk,” said Saravelos.

Antonio Ruggiero de Convra agrees. A weakened Fed is bad for the dollar, he said to customers this morning in a note seen by Fortune: “The concerns concerning the independence of the Fed – with the possible replacement of Powell in May by a person named against Trump – suggest a longer and more aggressive softening. In addition, the still fragile feeling towards the greenback is likely to maintain investors to hide against the new weakness in dollars.”

What is bad for the dollar is good for gold

The other side effect of Trump’s attacks on the Fed is the increase in the price of gold, said colleague from Saravelos, Michael Hsueh, in a note to customers published today. Hsueh predicted that the price of gold could reach $ 4,000 by the Troy ounce. (It’s currently $ 3,663.)

There is “a permanent challenge to feed independence and changes in the composition of the FOMC creating uncertainty about how this will affect the Fed’s reaction function next year,” he said. “Our preference (is) for the drop in the USD because it loses its status as G10 Highyield and reflecting a new inclination of foreigners to invest in American assets on a covered currency.”

This nervousness around the Fed and the dollar moves investors in the relative security perceived of gold, Hsueh wrote. “The official request of gold (east) continuing at a rate of about twice that of the 2011-2021 average, with much of this due to China.”

Elsewhere: the S&P 500 sold a little from its record yesterday, and this morning, the American term contracts are broken or flat – suggesting that some traders have decided to lock their earnings before Powell delivers what is likely to be remarks that exceed the market this afternoon. Asian markets were mixed before New York’s opening bell, but European exchanges were largely stable or moved to early trade.

Here is a snapshot of markets in the world this morning:

• Future S&P 500 were flat this morning. The index decreased by 0.13% during its last session.
• Stoxx Europe 600 was flat at the start of trading.
• The FTSE 100 of the United Kingdom increased by 0.21% at the start of negotiations.
• Nikkei 225 from Japan dropped by 0.25%.
• CSI 300 from China increased by 0.61%.
• South Korea Kospi dropped by 1.05%.
• Nifty 50 of India increased by 0.36% before the end of the session.
• Bitcoin increased to $ 116.8,000.

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