A research note today from Societe Generale found that, despite claims from senior US officials, the USD has generally weakened against other major currencies over the last two decades.
This announcement comes after a press conference on Saturday, where US Treasury Secretary Steve Mnuchin argued that by not intervening to support the yuan, the Chinese are effectively manipulating the currency.
Mnuchin was widely quoted by news outlets as stated “the decision not to intervene after intervening for a very long period of time” has led markets to believe that there is a desire from China to weaken its currency.
Meanwhile, president Donald Trump lashed out at the Fed in a CNBC interview on Monday. He accused China of devaluing its currency for years, giving the country a competitive advantage, while the US Federal Reserve (Fed) doesn’t lower rates, commenting: “We should be entitled to have a fair playing field … because our Fed is very, very disruptive to us.”
However, a recent research note from Kit Juckes, global head of FX strategy at Societe Generale, shows that, while in trade-weighted terms the dollar has gained 10% over the last 20 years, in real terms the dollar is in the same position it was in June 1999. Indeed, data shows that over this period of time the dollar has fallen against the yen, the euro and the Chinese yuan.
The Juckes says that while the yuan has been weakening since 2014, it’s only reversing gains made in the previous decade, stating in real terms, the yuan has gained about 30% against the dollar over a 20-year period.
Elsewhere in the research note, Juckes highlights that market rates are lower than they were, pointing out that the Fed has been hiking since 2015, but 10year Note yields were at 2.3% at the start of this hiking cycle and Treasury Inflation Protected Securities were at 81bp.
“None of which alters the fact that the President is frustrated that the Fed won’t throw more monetary wood on the fire and try to stave off a slowdown that seems unavoidable. But maybe when the Fed does finally ease, he’ll be able to say it was him who was right about what was needed, and he may get the weaker dollar that he clearly wants – if we can find another currency we’d like to buy,” says Juckes in the research.