Draghi’s comments had two immediate effects: the euro dropped like a stone against the dollar and Trump got extremely upset. The weaker euro, Trump said, would make it “unfairly easier” for the Europeans to compete against the US: “They have been getting away with this for years, along with China and others.”
If one currency is depreciating, another currency must be appreciating
As with Draghi, Trump’s message could scarcely have been clearer. The US sees the EU as just as big a threat as China, and is prepared to open up a second front in the trade war. Within 36 hours, the US central bank, the Federal Reserve, had signalled that it too was planning to cut interest rates and the euro regained much of the ground it had lost after Draghi’s intervention.
Europe has been warned. Any use of monetary levers to hold down the euro exchange rate will be deemed a provocation by the Trump administration.
Further cuts in interest rates to minus 0.5pc or beyond will be scrutinized for currency manipulation. A revival of quantitative easing will be considered a devaluation policy in disguise, as indeed it is, since the money leaks out into global securities and depresses the euro.
h/t Digital mix guy