by Kevin Hebner, PhD, Managing Director, Global Investment Strategist, TD Epoch
Today is not the first time a sitting US president has sought a weaker greenback to rebalance the economy. The ‘Nixon shock’ in 1971 induced a 20% weaker USD, with Treasury Secretary Connally announcing to his G10 counterparts, “The dollar is our currency, but it’s your problem.” A second precedent is the Plaza Accord of 1985, piloted by President Reagan and Treasury Secretary Baker, which delivered a 25% decline in the greenback.
Today’s backdrop bears numerous similarities to 1971 and 1985. For a start, the USD has appreciated by 30% since 2010 and is undeniably overvalued. In addition, the US economy suffers from a massive trade imbalance, which is unsustainable and, until recently, deteriorating even further. Finally, a transformational president believes America is on the wrong track and strives to usher in a new global economic order. Bottom line: similar to Nixon and Reagan, Trump believes America cannot rebalance trade without a dramatically weaker currency.
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