Business World

Monday 11 December 2017

Exporters could be hit by dollar swings sparked by Trump's policies

Chair of the U.S. Federal Reserve Janet Yellen. Photo: Andrew Harrer/Bloomberg
Chair of the U.S. Federal Reserve Janet Yellen. Photo: Andrew Harrer/Bloomberg

Andrew Milligan

Donald Trump's election win introduces significant uncertainty to the US government's policy outlook, economic activity and the US Federal Reserve.

Under the scenario of large tax cuts and corporate tax reform that Trump and House Republicans have at the heart of their fiscal agenda, there is a greater chance the Federal Reserve (the Fed), headed up by Janet Yellen, will delay increasing US interest rates into 2017.

Should Trump prove to be serious about pursuing a more protectionist policy agenda, the negative consequences for economic activity and corporate margins could easily offset the fiscal easing benefits.

This would prevent the Fed from increasing interest rates for some time. With particularly disruptive outcomes, the Fed may even consider easing policy.

What are the implications for Irish assets?

The answer is this is highly uncertain - does Trump adopt a more domestic policy of boosting the US economy through tax cuts and infrastructure spending, or does he turn more towards foreign policy aimed at reducing immigration and raising tax barriers?

He made many conflicting statements during his campaign. One risk for Irish exports and therefore equities would be if Trump follows through with a 20pc import tax.

Ireland is particularly exposed both directly and via the rest of the EU's considerable trade with the US. Industries such as pharmaceuticals and technology should particularly be examined.

Exporters may find headwinds or tailwinds from the currency. The euro may be affected by Trump's plans to repatriate cash held overseas by US companies. When such a programme was last put into effect, there was a major appreciation of the US dollar.

Conversely, if the new administration follows through with policies to expand oversight of the Fed and introduce more restrictive trade policies, confidence in US assets and therefore the dollar could decline sharply.

Against this backdrop, we expect the European Central Bank to keep interest rates low and adopt further quantitative easing to ensure the modest European recovery remains in place - on its own good for European and Irish real estate.

Andrew Milligan is the head of global strategy with Standard Life Investments

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