Playing Games
Eurizon SLJ Capital’s Stephen Jen warns that Trump may be quick to retaliate in the FX markets if it suspects that China is “playing games with its currency,” which may have disastrous effects on demand for U.S. assets.
“If you’re an international portfolio manager with 30 percent of your exposure to the U.S., and you know the currency will be guided meaningfully lower as a policy tool, why would you be investing here?” he said. “The Trump administration needs to be very, very careful with its dollar policy.”
Recall how the Fed’s quantitative easing sowed frustrations in emerging markets over what some officials saw as a means to manufacture a weaker dollar. Guido Mantega, Brazil’s finance minister at the time, went as far as to say the Fed was throwing money “ from a helicopter” and “melting” the dollar.
Whatever the case, Dallara is bracing for more turbulent times.
“I’ve lived through a lot of market gyrations in my career,” he said. “And I have an uneasy feeling that I can’t validate by data that tensions are going to, at some point, emerge into volatile market dynamics. This is a risk.”
This article was provided by Bloomberg News.