Greenback Sinks, Treasuries Get a Boost From Trump's Fed Salvo

(Bloomberg) -- Treasuries gained and the dollar sank on Thursday after U.S. President Donald Trump criticized the Federal Reserve’s interest-rate increases and lamented the greenback’s strength.

In an interview with CNBC on Thursday, Trump said he was “not thrilled” with the Fed’s rate hikes. He also said “our currency is going up, and I have to tell you it puts us at a disadvantage.” The full interview will air at 6 a.m. New York time Friday.

It’s “more or less unheard of” for a modern U.S. president to weigh in on Fed policy direction, so Trump’s comments on Fed rates “could chill” the market’s recent embrace of the dollar, said Scotiabank chief FX strategist Shaun Osborne.

The dollar pared about half its gains against a basket of major currencies, while two-year Treasury yields fell about 2 basis points to 2.59 percent.

“I don’t like all of this work that we’re putting into the economy and then I see rates going up,” Trump said, adding that Fed Chairman Jerome Powell was a “very good man.” Later, Lindsay Walters, a spokeswoman for the White House, said in an emailed statement that the president “respects the independence of the Fed,” and that his views on rates “are well known and his comments today are a reiteration of those long-held positions.”

Take Heed

Traders should heed the president’s comments on rates, said Mark Grant, chief global strategist at B. Riley FBR Inc.

“I expected for months that somebody in the administration was going to tap someone at the Fed on the shoulder and say, ‘Hey, wait a minute,”’ he said. “It’s very possible after a statement like this the Fed will have a second round of consideration over what they are doing.”

Jim Bianco, founder of Bianco Research LLC, saw less of an impact.

The comments aren’t likely to sway monetary policy, so it’s appropriate “for the market not to react to it,” he said.

And as for the currency, ING Groep NV strategist Viraj Patel said FX traders shouldn’t be too surprised, given comments from the administration that a weaker dollar would be good for U.S. trade.

The administration’s desire for a weaker dollar “shouldn’t be new news to USD markets,” Patel said in an email.

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