USD: Could Direct FX intervention Be On The Cards & Would It Ever Succeed? – Credit Agricole

Donald Trump does not like high interest rates nor a strong US dollar. Can a potential foreign exchange intervention succeed?

Here is their view, courtesy of eFXdata:

Credit Agricole Research discusses a possible scenario of a US direct intervention in the FX markets to weaken the USD.

An FX intervention to cheapen USD may succeed in our view only if it not sterilized, that is, if it results in growing US money supply. The extra cash can spill over into extra demand for exports and worsen the US external imbalances, weakening USD on a more sustainable basis…

Higher US rates could, in turn, encourage foreign investment flows into USD, negating the impact of the Fed’s intervention. In addition, any unilateral FX intervention will most likely violate the recent G20 agreement to prevent any form of currency manipulation and even trigger a global currency war with foreign central banks trying to debase their currencies

A global currency war could ultimately encourage renewed foreign inflows into USD, which remains the most liquid reserve currency, offering superior returns and offering unrivaled access to funding. This is a war that President Trump is likely to lose,” CACIB argues.

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