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Janet Yellen’s Criticism Of Trump Administration Is Actually Boosting The Dollar

When US Federal Reserve Chair Janet Yellen speaks, the world’s currency markets listen. Strange, then, that Yellen’s criticism of the Trump administration during her testimony to the Senate Banking Committee on Tuesday has actually driven the dollar higher against the pound.

Why should this be. Quite simply, because it helps to allay fears that the Trump administration is incapable of intimidating the Fed and forcing it to tow the line politically.

Yellen said that “economic and fiscal policy face an uncertain path under the administration of Donald Trump”, echoing sentiments expressed by Stanley Fischer, vice chair of the Fed, last week.

This is good news; the markets are understandably suspicious of Trump and are desperate for signs that his influence does not extend to controlling the rise or fall of the dollar – indeed it should be, and is, the other way around. The Fed ought to be calling the shots because they have the experience and the acumen that Trump and his new administration does not possess.

That said, the dollar’s gains have been incremental – the yield on government bonds rose on Yellen’s words, whilst UK yields are declining, meaning capital flows will favour the dollar.

So far, given the unprecedented political upheaval at the White House, markets, and especially foreign exchange markets, have not experienced the turbulence that many predicted. Becalmed markets can only be a good thing at this stage, although it’s anyone’s guess what may happen a few months down the line, when “the Donald” and his cronies have their feet more firmly under the table.

For now, however, the prospect of interest rate hikes in the US are moving the markets more than anything else, with a June, rather than a March hike the most anticipated outcome.

Meanwhile in Europe, poor UK employment stats announced on Tuesday have seen the pound fall further against the euro. Wage growth in the UK has also been weaker than forecast, and with inflation increasing, the pound plummeting even further vs the euro looks very much like an accident waiting to happen.

Best be vigilant, and if you are planning a trip abroad, we would urge you to use our comparison engine to compare the best rates from our carefully selected brokers, as well as overseas transfer agencies like our lifetime partners Azimo and Transferwise – and save yourself up to 85% of the fees you will pay to a high street bank.

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