Opinion | Forget yuan devaluation, what if Donald Trump weaponises the US dollar?

Savvy investors know full well that market plays are never safe one-way bets for too long. The US dollar has been king for most of 2018, having enjoyed its best run since 2015, but all good things generally come to an end.

Economic fundamentals have been kind to dollar bulls since early spring, but there is no guarantee of the rally’s life expectancy, especially if “crazy town” politics gain ground in Washington. Beijing had better be prepared to ride the coming storm as it might provide a valuable opportunity.

Currency plays are generally down to relative strength expectations about growth, interest rates and bond yields. The dollar has had a great run for its money as America’s economy has boomed, labour demand has surged, while the Federal Reserve has stuck to its guns on normalising interest rates.

This has won plaudits for the dollar especially as US interest rate and bond yield differentials have rallied in the currency’s favour. Trade war worries and unsettled emerging market conditions have also attracted considerable safe haven demand for the US dollar in recent months.

Most of the good news is already factored into the rally, but ugly politics could soon raise its head. US President Donald Trump’s recent troubles over White House leaks, the Russia collusion investigation, and books and newspaper articles disparaging his presidency are not helping market fears about the US administration lashing out with policies that could add to global instability over the future.