Forex traders need to focus on trade and current account imbalances

Richard Koo, Chief Economist at Nomura Research Institute, says the forex traders need to take into account the trade and current account imbalances, given that POTUS has criticized China, Japan and Germany for their trade and monetary policies.

Now that President Trump has decided to single out China, Japan and Germany—the three countries running the largest trade surpluses with the US—for criticism of their monetary and forex policies, currency traders will have to start taking a closer look at trade and current account balances.

This marks a major turnaround from the practice of the last 15 years or so, when they paid almost no attention to trends in these two indicators.

Mr. Trump’s declaration that he will seek to correct America’s trade imbalances means it is only a matter of time before the US policy focus shifts to exchange rates, the most important tool for correcting such imbalances. That may discourage global investors from buying the currencies of trade-deficit nations like the US or from selling the currencies of economies running trade surpluses, like Japan and the Eurozone.