Trump “is not happy” with the Fed raising interest rates…claiming that rising rates hurt the American economy and cause the US Dollar to rise…that a rising US Dollar makes America less competitive. My good friend Dr. Martin Murenbeeld, (www.Murenbeeld.com ) has long argued that the best way to correct the huge American trade deficit is to drive down the USD…especially against overvalued Asian currencies.

Trade wars: In my July 7/18 notes I quoted Christopher Wood of CLSA as saying that “politics” have replaced Central Banks as the most important driver of world markets. I agree and I see Trump as the epicenter of “politics.”  Trade wars (Trump Vs. the Rest of The World) are a sub-set of “politics” and Trump is now threatening to escalate again with 25% tariffs on auto imports and up to $500B of tariffs on Chinese imports. In my June 9/18 notes I wrote that trade tensions were growing as Trump steps up his game…and that he was just getting started.

“Currency wars” are another sub-set of politics and Trump has linked “currency wars” to “trade wars” by declaring that the EU and China are deliberately devaluing their currencies to gain a competitive advantage over America. There may be some truth to that…at least in China’s case…and Trump has a point when he says that high US interest rates push up the US Dollar. But the New Fed is doing the right thing by boosting rates from “emergency” levels…the economy is strengthening and is able to deal with rising rates. But capital flows to America for safety and opportunity…not just to pick up yield.

The US Dollar Index (USDX) hit a one year high this week following Powell’s Congressional testimony. Powell said that the US economy is doing fine and that  the Fed will likely continue to gradually raise short term interest rates. The Dollar fell from those highs on Thursday’s CNBC Trump interview and fell further Friday morning on Trump’s tweets.