Just over a year ago, people in the US woke up to find that Donald Trump had clearly beaten his Democratic rival and would become their 45th president. He started work almost a year ago, on 20 January, so it’s time to see how he’s measured up. One thing we’ve taken on board is his erratic behaviour, propensity to Tweet and the concept of ‘fake news’ – named Collins Dictionary’s official word of the year.
Most of his election promises are very much a work in progress, even if the Supreme Court this week authorised the ban on citizens from eight mainly Muslim countries from travelling to the US. As for making America great again, he can point to stock market rallies this year of between 15 per cent (Dow Transports and Utilities) and 29 per cent (Nasdaq). These results are in line with most Asian indices, where the Hang Seng is the best performer putting on 30 per cent this year, and better than European bourses, which put on between 3 per cent (FTSE 100) and 16 per cent (Italy’s MIB).
The economy has pretty much trundled along, inflation and GDP growing at 2 per cent, the trade deficit at a steady $45bn monthly, but more success on unemployment which has fallen from 4.8 per cent to 4.1 – its lowest in 17 years. However, in terms of the strength – or otherwise – of the mighty dollar, here results are patchy indeed. This matters as it affects the value of everything the US has, sells and buys.
Ironically the dollar index peaked on 3 January at its highest point in 15 years – then downhill all the way; in dealer speak: ‘Buy the rumour, sell the fact’. It has lost ground against every currency we monitor, except the New Zealand dollar (off 1 per cent) and the embattled Turkish lira (8 per cent weaker). Will this trend persist next year? Looking at the charts the answer is yes, probably.
The euro, which makes up just over half the dollar index’s weighting, is up a cool 13 per cent having broken the upper edge of the straightjacket since 2015. This year’s rally is the first leg in a series that should reverse part of the losses since 2008.
Cable, despite Brexit brouhaha, managed a 9 per cent gain – admittedly from a dirt-cheap level – making us Brits far poorer than we had been. The expression ‘dirt poor’ comes from the US south where there was no floor to the dwelling, just the earth. This year’s slow rally is an initial step in a recovery process that could take sterling back to the pre-referendum mean regression at $1.5500.
The Japanese yen, an increasingly managed currency in a dirigisme economy, where the central bank owns way too many bonds and equity index ETFs, has hardly budged, from 118.60 yen per dollar in January to 112.50 today. A glacial drift towards the psychological 100.00 yen could dominate the next two years or so.
Lastly the Canadian dollar, which like the Mexican peso suffered badly because of President Trump’s vow to tear up the North American Free Trade Agreement, has powered ahead since May, from C$1.3800 to C$1.2050 four months later. The latest rally for the greenback is a countertrend bounce and the Canadian unit should strengthen slowly this coming year.
