When President John F. Kennedy assumed office in 1961, one of the goals he’d set for his term in charge was to improve the health of the nation.
Automation had started to replace hard labour jobs and consequently American workers exercised less.
As President-elect, Kennedy had articles published in mainstream magazines warning about the importance of keeping fit.
One of his most curious ideas was that he believed any healthy American should be capable of walking 50 miles.
When this view became public, groups of Americans took the President up on that challenge. Many people in the UK and the Netherlands did the same after seeing images from across the Atlantic.
The Kennedy March, as it’s called, is still organised annually in the Netherlands. On Sunday I finished it in 16 hours.
In this context, Kennedy obviously meant the ‘health of the nation’ in the most literal sense. But most of the time politicians use the term to refer to the state of the economy.
With $19.9 trillion debt, you might argue the US economy isn’t in the best of shapes.
To make things worse, the economic outlook is now becoming rather gloomy after the initial ‘Trump rally’ that accompanied the new President appears to have ended.
The dollar is 2017’s worst performer
While Trump is busy deliberating what odious thing to call CNN next, confidence in the US dollar is weakening.
The greenback ended the quarter and half year on a weak note, losing 5.6% in the first half of 2017.
It’s its largest percentage decline in two quarters since 2011. The dollar is now performing worse than all other major currencies this year.
“Few had expected such a turnabout even six months ago,” writes Chelsey Dulaney in the Wall Street Journal.
“Investors had driven the dollar to a 14-year-high after the US presidential election on hopes that Donald Trump’s plans for a tax overhaul, deregulation and fiscal stimulus would accelerate growth while the Federal Reserve also raised interest rates.
“Instead, the Trump administration’s plans have repeatedly hit political roadblocks while US growth, employment and inflation have begun to soften.”
As investors are getting more pessimistic about Trump’s plans actually getting realised, confidence in the European and Canadian economies is on the up.
Both the European Central Bank and Bank of Canada have given strong hints that they’re going to taper off monetary policy measures like quantitative easing.
Investors, in turn, interpreted these messages as a bullish sign for the European and Canadian economies with higher interest rates on the horizon. A rush on the euro and Canadian dollar followed.
The bearish sentiment regarding the US economy combined with a more bullish outlook for many other developed and emerging markets have conspired to push down the dollar.
End of the Trump rally
The dollar’s downward trend could mark the end to the ‘Trump rally’ – the name for investors’ optimism about the merits of Trump’s policy programme, which included lower taxes, less regulation and more infrastructure spending.
The Trump rally initially brought about a rebound in the dollar and helped stock markets hit new highs. This rally now looks to be running out of steam as the trend is reversing.
“Serious headwinds have now crashed into Trump’s plans, and the stock market is re-evaluating its outlook,” notes financial writer Jim Rickards.
“These headwinds consist of weakness in the US economy, dysfunction in the Congress, and unrelenting resistance to Trump coming from Democrats, the media, the bureaucracy, and even many Republicans.”
It’s an important reason why investors are losing confidence in the US economy. The self-proclaimed ‘deal maker’ is finding it harder to apply his business acumen in the world of politics.
With Trump’s plans repeatedly defeated in Congress and in courts, people have started to doubt his ability to push through other proposals.
His ambitious plans on tax revision, fiscal stimulus and trade deals may not see the light.
“Trump derailing his own recovery story is the biggest problem for the dollar going forward,” says currency trader Tom Tragett.
“Whilst the equity markets are clearly still on board with Trump’s story, it’s obvious that the currency markets are not at all convinced.
“In the short term I can see the dollar index coming lower still, but it’s the trade-off between the Fed actions and the lack of Trump action that’s making this a rather opaque picture.”
Investors may also have misinterpreted the Federal Reserve’s interest rates hikes as a sign of strength, suggests Jim Rickards.
“What the market is missing is that the Fed is not raising rates because of strong growth. They’re raising rates so they can cut them in the next recession.”
“The problem is that by raising rates, the Fed will cause the recession they are preparing to cure.”
The President of the Federal Reserve Bank of St Louis, James Bullard, appears to support this argument.
Speaking in London last Thursday, he told the press the Fed had been “overly hawkish”. He also said he didn’t support any further rate hikes this year.
The markets are catching up. They see the rate hikes weren’t necessarily proof that the US economy is in strong health.
The dollar’s weak performance in 2017 so far reflects this.