A friendly environment for the dollar - Socgen

Kit Juckes, economist at Societe Generale, explained that a few days to reflect on the possible implications of a Trump Presidency for the US, the rest of the world and the European political landscape hasn't really done much to fill in the holes in our knowledge about what President Trump implies, relative to what Candidate Trump said.

Key Quotes:

"President Trump wants to cut corporation tax rates, encourage repatriation of foreign-held earnings, embank on infrastructure spending, and for want of a better way of putting it, rethink trade and international defence policies. On the domestic front the changes he wants are likely to run into considerable opposition from those in Congress who oppose increasing the debt ceiling, but the overall thrust of all his proposed changes is to boost domestic demand. In the process, higher inflation is likely and as long as there is background talk of decrease central bank independence, we'll see a bigger inflation risk premium in markets. All of which is bad for treasuries and in turn, more friendly than not for the dollar.

As long as higher nominal yields don't mean lower real yields, and as long as risk sentiment is supported by the hope of less regulation (in banks and pharmaceuticals, mostly) and hopes of other demand and corporate-friendly policy changes, we'll remain bullish USD/JPY. BOJ policy now is SO much better suited to helping weaken the currency than it was earlier this year. The higher yields unnerve risk appetite (something we feared a week ago) the less the rise in yields and the more the yen finds support. In that case, the more weakness is concentrated in EMFX.

As long as TIIPS yields head higher, so will the dollar."