Trump has been
making comments about politics, media and other matters frequently on Twitter
since he became a politician (or even earlier). Some of Trump's tweets
contradict his government policies or the US fundamental values. The US Federal
Reserve is planning to raise rates and this could increase the value of the
USD. However, the US president definitely does not like the Fed's plan that he
openly criticised the Fed chair who was nominated by himself about his rate
hike plan. When Trump was still the candidate, he already publicly said,
"I'm a low-interest-rate person". He also criticised the quantitative
easing policy.
Trump's tweets do
affect financial markets, as markets believe his tweets provide implications
about his policy plans. Today his criticising tweet affects the Forex market
and lowers the value of USD, the market believes his tweet may imply he will
put pressure on the Fed chair to lower the USD value. Although some of Trump's
promised policies do not come true, because of his US presidential power, he
has power over influencing many things. Therefore, his words are very powerful.
When the words are
powerful, then they can play magic. Trump can use his words to deliver a result
without delivering the actual policy. Just like this time, Trump does not make
any monetary policy change (he does not have the power though), he creates a
result in his favour (the USD depreciated today). This has the same logic as
the central bank guidance. When Trump speaks about something and markets
believe in his words, then markets will react in response to his words just
like the actual policy is made, and markets become what Trump wants without
making any actual policy. Moreover, when Trump speaks about something, other
Republican politicians will back him and make comments more credible, this
ensures the power of Trump's words, since credibility is the magic of a
president's words.
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