The dollar has slumped against both the euro and pound this morning after US president Donald Trump said he was "not thrilled" with US interest rates going up.
The US central bank, the Federal Reserve, is supposed to act independently of politics when deciding whether a rate rise is prudent and its current chairman, Jerome Powell, was appointed by Mr Trump earlier this year.
The Federal Reserve lifted interest rates to 2 per cent in June, and indicated at that time it expected rates to go up twice more in 2018.
But despite this, Mr Trump told Reuters: "I’m not thrilled with [Mr Powell's] raising of interest rates, no. I’m not thrilled.
"We’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated."
During the same interview Mr Trump also accused China and the European Union of manipulating their respective currencies.
This morning the dollar is 0.5 per cent lower against the euro, and 0.3 per cent lower against sterling.
Higher interest rates push the value of a currency higher, which may not suit the economic agenda being pursued by Mr Trump, as a strong dollar makes peer currencies relatively weaker, and that makes imports of overseas goods into America cheaper, denting Mr Trump’s hopes of protecting domestic producers.
For example, the dollar gaining in value relative to the Chinese currency makes imported goods from China cheaper for US consumers to buy, despite Mr Trump’s tariff policy which is explicitly designed to make Chinese imports into the US more expensive.
The Chinese currency falling in value relative to the dollar therefore has the effect of reducing or negating the impact of the tariffs.
Peter Elston, chief investment officer at Seneca, said the direction of travel for US interest rates was definitely higher, as the country’s economy was operating at above its long term normal growth rate.
Jacob De Tusch Lec, who runs the £4.1bn Artemis Global Income fund noted US economic growth, at 4.1 per cent in the second quarter of 2018, was at the highest level since 2014.
Typically economic growth on such a level would validate the decision to put rates up, but Mr De Tusch Lec said there were also economic indicators, such as the flattening yield curve, which meant there could be little certainty about the prospects for the US economy.
He has been buying more defensive shares for his portfolio in recent months.
Nancy Curtin, chief investment officer at Close Brothers, said Mr Trump would continue to apply pressure to the Federal Reserve until he knew the outcome of the current trade talks with China.
david.thorpe@ft.com
