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Wall Street Weighs Wild-Card Risk of U.S. Move to Weaken Dollar

(Bloomberg) -- A growing chorus of Wall Street foreign-exchange analysts is writing about the risk that U.S. President Donald Trump may move beyond words in his quest for a weaker dollar.

From ING to Canadian Imperial Bank of Commerce, more analysts in recent weeks have been openly contemplating the wild-card notion that the administration could intervene to cheapen the dollar. The research comes as Trump has intensified criticism of both the Federal Reserve and other countries’ currency practices. The U.S. leader tweeted last week that Europe and China are playing a “big currency manipulation game,” and called on the U.S. to “MATCH, or continue being the dummies.”

The U.S. last intervened in FX markets in 2011, when it stepped in along with international peers after the yen soared in the wake of that year’s devastating earthquake in Japan. While that effort boosted the dollar, ING says the American administration may move to do the opposite -- and weaken the greenback should the European Central Bank pursue further monetary stimulus. The U.S. hasn’t taken that step since 2000.

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“Could frustration with the Fed prompt the President to take matters in his own hands and weaken the dollar?” ING’s Chris Turner and Francesco Pesole wrote in a note Monday. Though the U.S. last month reaffirmed a Group-of-20 commitment to refrain from competitive devaluation, “the lure of a weaker dollar to support the U.S. economy into 2020 may be too great,” the strategists wrote.

The market has yet to put any stock in the notion of U.S. intervention: Global currency volatility is at a five-year low, and the Bloomberg dollar index is barely changed this year. But a Fed trade-weighted measure of the dollar is not far below the strongest since 2002, underscoring the...

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