What Will Happen To The US Dollar After The G20 Summit In Osaka, Japan?

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The market determines the exchange rate of majority of currencies but economic and political situations can affect the currency. For example, the results of the G20 summit in Osaka could push the US dollar down to a yearly low. Trump wants weaker dollar so that it will make the US more competitive abroad. After a 4-month rally, US Dollar Index that tracks the dollar vs. 6 other major currencies announced that the dollar has fallen by 1.6% in June to nearly negate all its 2019 gains. The US dollar could fall further depending on Trump’s negotiations at G20 in Japan.

What is the reason behind the decline of the US dollar? The Federal Reserve shifted to a more expansionary monetary policy with interest rate cuts in July. Lower interest rates during a dovish policy will take away support from the dollar and make it a less attractive investment. When the US economy is strong, interest rates are high and investors flock to the dollar.

Trump’s push for a weaker dollar and lower interest rates is contradictory; however, his argument is connected to trade and he wants US products to be more competitive in the global market. Trump is expected to discuss trade with China’s President Xi Jinping at G20 and investors in all assets including currencies will be closely looking on. If negotiations do not go well, gold and yen will be the beneficiaries of a lower dollar.

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