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Published: Fri, February 03, 2017
Economy | By Melissa Porter

Dollar set for worst January in 30 years after Trump, Navarro comments


One of Donald Trump's heads of trade has said that the euro is a "grossly undervalued" currency and that it has been exploited by Germany, to the detriment of both the U.S. and the rest of the EU.

"We will not comment on that", a spokeswoman for the ministry told Reuters.

Speaking to the Financial Times, Peter Navarro, the director of Mr Trump's new National Trade Council, said the euro was like an "implicit Deutsche Mark" and that its low valuation relative to other currencies gives Germany a major advantage over its main trading partners.

He said Germany "continues to exploit other countries in the European Union as well as the U.S. with an "implicit Deutsche Mark" that is grossly undervalued".

First, and since it comes just days following the president's comments about the "too strong dollar", it suggests that the United States administration sees the exchange rate as one of the main anchoring points for the deployment of its trade policies.

The dollar tumbled on Tuesday, headed for its worst start to a year in over a decade, while stocks cemented their biggest losses in six weeks as U.S. President Donald Trump added uncertainty to the market following stringent curbs on travel to the United States.

Many economists, including those at the European Central Bank, have long warned that the trade imbalance between Germany and other European countries poses a risk to the eurozone.

"I personally view TTIP as a multilateral deal with many countries under one 'roof, ' " said Mr. Navarro.

"The issue is at what point do investors get concerned that the potential negative shock effects from trade, immigration and geopolitics overwhelm the positives (of potential USA stimulus)", said Bluebay asset management head of Credit Strategy David Riley.

Germany's trade surplus powers a large chunk of its economy.

Bruised dollar bulls reassured themselves that the Federal Reserve should signal later that it still plans to raise US interest rates a number of times this year.

The dollar fell 0.9 percent against the yen on Tuesday in the wake of Trump's remarks, briefly touching a two-month low of 112.080.

The difference in interest rates and inflation expectations between the USA and the European Union has coaxed global investment to the US, strengthening the value of the dollar against the euro.

Though growth overall remains sluggish in the euro zone, there are signs that the economy is changing, with inflation picking up in Germany in recent months. Trump went on to predict the EU's possible disintegration as other member states would follow the U.K.'s exit, a process the president has embraced. But he said Trump would kill it dead, in favor of bilateral deals, which take as long or longer to negotiate, but which deliver fewer benefits.

Mr. Matthijs said he believes Mr. Navarro and the administration see a weaker Europe as "in their interest because they can do bilateral deals".

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