How Trump creates another ’run-hot’ influence on the economy

Investing.com -- According to the latest Sevens Report, President Donald Trump’s endorsement, intentional or not, of a weaker U.S. dollar is adding yet another force pushing the economy into what the firm describes as a “run-hot” environment.

In its latest note, Sevens said Trump “sent the dollar to four-plus-year lows” after dismissing its recent slide, effectively signaling support for further weakness in the currency.

According to Sevens, the administration had already been driving a hotter economy through “tax cuts,” pressure for “lower interest rates,” sweeping deregulation and efforts to attract foreign investment.

The downside, the firm warned, is that “ever-increasing amounts of money chase finite goods and services,” keeping prices elevated even as growth holds firm.

A weaker dollar amplifies that dynamic in three major ways. First, Sevens noted that “a weaker dollar makes imports more expensive,” pushing up prices on everyday goods in a country that still imports most of its consumer products.

Second, it boosts corporate earnings for multinationals because U.S. goods become cheaper overseas, which helps explain recent strength in technology and consumer discretionary stocks.

Third, it “makes real assets more expensive,” lifting prices for gold, silver, oil and other commodities that “can’t be devalued like a currency.”

Sevens cautioned that the dollar’s roughly 11% drop in the past year is “neither ‘modest’ nor ‘orderly.’” While markets have so far absorbed the move, the firm warned that a quick slide into the low 90s could “start to rattle markets,” further intensifying the run-hot mix of strong growth and persistently high prices.

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