23 July 2018 ( Lagos ) : The Dollar resumed its slide on Monday morning as trade jitters seem to have stepped up, further threatening a currency war. President Trump publicly criticized the Federal Reserve’s tightening policy on Friday, stating that “the United States should not be penalized because (they) are doing so well” - in his opinion, tightening now is hurting his efforts to boost the economy.

The erstwhile real estate tycoon is not in favour of rates going higher and neither are many U.S. households. After all, higher rates mean increased costs of borrowing, higher mortgage interest payments and less incentive to spend. However, the Fed cannot base its decision on short-term political ambitions, as letting inflation run out of control will be much more damaging in the long run.

Trump’s comments on Friday also threaten the independence of the central bank which is crucial to markets’ confidence. In my opinion, Fed Chair Jerome Powell will proceed with the tightening process, but there is a chance that hikes will become less gradual if the President continues to pressure the central bank.

On the data front, U.S. GDP is expected to expand more than 4% in Q2, or double its Q1 growth, when the numbers are out on Friday. This fast growth may be attributed to multiple factors, including consumer spending, business investments, and inventories. The rapid growth will likely guarantee another interest rate hike in September, pushing the dollar higher. However, there is a high chance that we won’t see the 4% figure in the coming quarters as trade tariffs begin to hurt both U.S. exports and capital expenditures.

Source: Hussein Sayed, Chief Market Strategist at FXTM

Reporting for EasyKobo on Monday, 23 July 2018 in Lagos, Nigeria