China tries to talk down the dollar, saying market ‘too optimistic’ about Trump

After making little headway in talking up the yuan, Beijing has changed tack to talk down the US dollar.

Ma Jun, chief economist at a central bank research bureau, said on Thursday the market was “too optimistic” about US president-elect Donald Trump and his policies.

He said the greenback’s rise since Trump won the presidential election “does not have much fundamental support” and was mainly due to “changes in market expectations”.

“Trump’s presidential victory raised speculation of fiscal expansion and fuelled inflationary expectations ... These factors have driven up interest rates in the US and naturally led to capital inflows and a stronger dollar,” Ma said. “In my view ... these expectations are perhaps too optimistic.”

Ma said a stronger dollar could hurt US exports, and a jump in US Treasury yields might have greater “tightening effects” on the US economy than the recent two interest rate hikes by the US Federal Reserve.

“In addition, Trump’s big tax cut and infrastructure spending plans will not necessarily become reality in the immediate or midterm,” Ma said.