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Trump tanked the dollar, but it’ll bounce back soon, analysts say

  • The U.S. dollar dropped sharply after Trump complained about the currency's recent strength in an interview.
  • Analysts expect the greenback's weakness will be short-lived, pointing to the outlook for the Federal Reserve to raise interest rates
A fake dollar bill with US Republican presidential candidate Donald Trump's picture on it is displayed for sale with other electoral items at a roadside stall as pedestrians walk past in New York on February 26, 2016.
Jewel Samad | AFP | Getty Images
A fake dollar bill with US Republican presidential candidate Donald Trump's picture on it is displayed for sale with other electoral items at a roadside stall as pedestrians walk past in New York on February 26, 2016.

The dollar fell on Wednesday after President Donald Trump criticized its recent strength, but analysts expect the greenback to bounce back soon.

Trump said the currency was "getting too strong" in an interview with The Wall Street Journal.

"I think our dollar is getting too strong, and partially that's my fault because people have confidence in me. But that's hurting—that will hurt ultimately," Trump told the paper.

In the wake of the comments, the dollar index, which measures the greenback against a basket of currencies, fell as low as 100.01 in early Asia trade on Thursday, from levels above 101 earlier in the week.

The dollar also tumbled against the safe-haven yen, fetching as little as 108.70 yen in early Asia trade Thursday, the lowest since November, down from levels above 111 yen earlier in the week.

But analysts said the dollar weakness was temporary.

Jim Rickards, editor of Strategic Intelligence and the author of "Currency Wars," told CNBC's "The Rundown" on Thursday that the dollar's knee-jerk drop wouldn't last long.

"Donald Trump is the president of the U.S. so I don't blame market participants for taking him seriously," Rickards said. "But Trump is very mercurial, very unpredictable. He's got a long track record of completely reversing himself."

Rickards noted that during the campaign Trump vowed to label China a currency manipulator on "day one," but the administration has already said it won't apply the label. Additionally, Rickards pointed to candidate Trump's accusation that Germany was a currency manipulator even though the country doesn't have its own currency and instead uses the euro.

"He didn't do any of the things he said he would," Rickards noted. "I think it's important to understand that Trump can change his mind in a heartbeat. He probably will. He thinks it's an appealing thing to say. I wouldn't read too much into it."

Rickards added that he expected Trump to tap "hard money" advocates to the Federal Reserve soon and that the U.S. central bank would hike interest rates in June, both of which were likely to push up the dollar over the next few months.
Rickards wasn't alone in scepticism that the Trump-inspired dollar weakness would evaporate quickly.

"Will the real Donald Trump stand up?" asked Lim Say Boon, chief investment officer at DBS Bank, in a note Thursday, pointing to similar Trump policy reversals as Rickards. "You cannot invest on President Trump's quirks and quips. He could just as well say something else tomorrow."

Lim noted that the dollar had already been vulnerable from safe haven buying in the yen, recent U.S. data disappointments and falling U.S. Treasury yields.

"The president's comments do matter to the dollar, but only in the very short term. Eventually, it's not what he says but what he does that really matters. And the markets would know he says a lot of stuff – a lot of contradictory stuff. So this will pass," Lim said.

Lim pointed to a number of bullish expectations for the dollar, noting that Fed will still be hiking rates and was planning to start shrinking its balance sheet.

"Any one of Donald Trump's promised policies — tax cuts, offshore corporate profit repatriation, a border adjustment tax — would be bullish for the dollar," he said. Still, he added, "Trump's policy flip-flops will keep markets off balance."

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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