US: Rising political risk - AmpGFX

Political risk in the USA appears to have been a factor contributing to a weaker trend in the USD over the last year, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“The success by Trump in passing major tax cuts and the strength in the US economy may have been a reprieve for political risk in the USA and provided scope for some recovery.”

“However, the tariff news appeared to weaken the USD, perhaps via generating more political uncertainty as the policy received widespread criticism from inside and outside the USA.”

“Furthermore, it led to the resignation of Trump’s most respected economic advisor, Gary Cohen.  In the last day, the firing of Secretary of State Tillerson appeared to undermine the USD further, raising the appearance of an unstable administration.”

“On the one hand, the staff changes at the White House can be viewed as a more confident Trump directing policy towards his core America First agenda, potentially boosting his public support.”

“However, the staff changes suggest that Trump will push harder on protectionist measures and may reignite tensions with Iran.  Through this policy agenda, Trump’s combative style of leadership may come to the fore.  This may raise political risk at home and geopolitical and global economic risks.”

“Russia’s alleged poisoning of an ex-Russian spy in London feeds back to US politics, further adding to questions on why the US administration has been ambivalent towards Russia, contributing to perceptions of a president swimming against the tide in Congress.”

“Uncertainty in US politics has remained high since Trump was elected, as he won against the odds and divides opinion.  He is supposed to have a highly motivated supporter base that might be able to swing elections, even if his overall approval rating appears to be depressed.  Trump speaks directly to this supporter base via Twitter, while dismissing a lot of media commentary as fake news.”

“On the other hand, Issues such as gun control and immigration remain highly contentious and maybe firing up left-leaning voters.  At the very least, there are a lot of currents running through US politics that increase uncertainty.”

“Various polls show significant net disapproval of Trump.  There was a modest bounce after the passage of tax cuts. A dip in Feb that may relate to the Florida school shooting and equity market correction.  There has been a little bounce recently since the tariff and N.Korea announcements.”