In last week’s Economics Weekly we wrote about inflation and its prospects under a new Trump administration. In this week’s Economics Weekly, we discuss the dollar under Trump. While we continue to wait and see how the Trump cabinet is likely to take shape and what policies will actually be proposed, one of the more immediate issues his administration might be forced to deal with is the strong dollar. Reading through the financial pages, it is quite clear that the overwhelming consensus is now that the currency is a one-way bet higher; this is a sure sign for caution. Currencies are, of course, notoriously difficult to predict in the shorter term, and track records are only slightly better over the longer term given that currencies tend to adhere to longer-term economic fundamentals. We were not surprised, therefore, to hear during a TV interview last week one former chief economist and currency strategist, previously at a major global investment bank, candidly admit that he used to think he knew more than anyone about currencies and now he thinks he knows next to nothing.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.