Macroscope | Donald Trump’s plan for the US economy faces this one big problem
The dollar’s appeal as a safe haven is driving ‘renewed and broad demand’ for the currency
April’s US jobs data came in below market expectations but their release on May 6, rather than triggering renewed weakness for the dollar, might prove the catalyst for the greenback to regain favour with currency market participants.
And that is without factoring what might occur in currency markets if there is a perception China’s economy might stall. An “L-shaped” trajectory for Chinese economic growth was the widely-reported opinion of an “authoritative figure” writing in last week’s People’s Daily.
Mr. Trump may yet have to accept that global circumstances could lend themselves to renewed and broad demand for the dollar
If China’s economy were to go “L-shaped” it would surely be reasonable to expect US government bonds and the dollar to be the beneficiaries of accompanying capital flows.
After all, in a general sense, the part played by a reserve currency such as the dollar “is to be a harbour during a storm, it’s where people flock when the unexpected happens,” as San Francisco Fed President John Williams said on May 9.
An “L-shaped” trajectory for Chinese economic growth would certainly be a tale of the unexpected.