World is frozen in response to deluge of US dollars, fearing Trump punishment | Stephen Bartholomeusz
When the European Central Bank’s governing council met last week, it was expected to do something, or at least say something, about the strengthening of the euro against the US dollar. It did nothing and said little.
That may be because it is already at the outer limits of monetary policy – negative policy rates and large-scale asset purchases by the bank – but also due to concerns that too great a focus on the exchange rate might prompt a backlash from a Trump administration focused on trade imbalances.However, the dilemma facing European policymakers is one confronting much of the world as it struggles to recover from the destructive impact of the pandemic on economic growth.
A weak dollar exports deflation elsewhere. It helps US exporters be more competitive and therefore one that imports more than it exports) while damaging the exports and growth prospects of economies elsewhere.At the other are countries such as Brazil and Turkey, whose economies have been weakened more than most by the impact of the pandemic.
Moreover, recent events and the looming US election – with very different policy frameworks depending on whether Donald Trump or Joe Biden emerges with the presidency – adds a sense of political instability and another layer of uncertainty to the outlook for the US. It would be even more aware than western economies of the risks of inflaming the administration, given that it is already weighed down by US tariffs and, more recently, a recent raft of financial sanctions and other measures, albeit those are targeted at companies and individuals rather than economy-wide.
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