Global Investing: Here's why King Dollar will still rule Planet Forex

Fiscal stimulation when the economy is at full employment only means one thing: inflation.

There is no doubt that politics, not economic data or central bank jawboning, now drives real time moves in the world foreign exchange markets. I attended a global private bank luncheon where a top British economist assured me that, after Brexit and Trump, the market's next trauma was a French far-right victory in April.
Horrified, I was lucky to have coffee with one of France's most distinguished economic diplomats, an énarque veteran of the Chirac/Sarkozy Quai d'Orsay. Mais non jamais monsieur, he assured me. Emmanuel Macron is the luckiest politician in the history of the Fifth Republic. Fillon's scandal has gutted the centre-right. Sarkozy, Holland, Valls and Juppé have all been rejected by their parties. Benoît Hamon and Socialists are a non-starter-and Macron will easily beat Le Pen in the second round.
His analysis reinforces my appetite for French equities after the inevitable sell off. As Nathan Mayer Rothschild, in whose bank (Baron David ibn Guy's line) Macron once served as a director, observed "buy when there is blood on the street", a quote I always remember when I am in the Place de la Concorde, where the blood from the guillotine literally flowed into the gutters of the Hotel Crillo.
The US dollar's 3.5 per cent swoon since January 3 even though interest rates spreads moved in its favour was due to a political catalyst. Trump's casual abandonment of the "strong dollar" taboo and brazen attempt to talk the dollar down to help Rust Belt exports. Then one of Mrs Yellen's cronies warned the markets not to rule out a March FOMC rate hike and King Dollar was again in play.
Now even the dovish Chicago Fed president Charles Evans has warned of three rate hikes. The Fed is no longer talking about "data dependence" because it is convinced price pressures will continue. This is what Janet Yellen meant when she warned the markets about a "nasty surprise". The FOMC statement sent shivers down my spine with its simple observation "inflation will rise".
Breakeven yields in the US Treasury bond market now imply two per cent inflation, not one per cent as in spring 2016, when the Yellen Fed did a policy U-turn on rates (spooked by China and Brexit?) and the US dollar then tanked into the summer. The New York Fed GDP tracker now estimates 2.9 per cent growth in Q1 2017. Fiscal stimulation when the economy is at full employment only means one thing: inflation. Trump's "America First" protectionist policies mean reinforce inflation risk.
My take? The US dollar is down but not out. King Dollar has claws. King Dollar will rule Planet Forex in 2017, as it did in 2015 and 2016.
Is it not coincidental that the Japanese yen strengthened just before Shinzo Abe came to kowtow before The Donald in the Oval Office? Whoever thinks the yen is not a managed float (rigged) currency obviously knows squat about Marunouchi and the macro storm clouds (ichimoku?) in the Empire of the Rising Sun.
The British prime minister will formally trigger Article 50 next month and begin the two year marathon talkfest that will culminate with the UK's exit from the EU. When even Lloyds of London, the quintessential City version of a Pall Mall gentlemen's club intends to move to Luxemburg after Brexit, all hope is lost for the sceptered isle. I see a global run on sterling assets - the run on London property has already begun. This September 1992 all over again? I know, I was there.
Shrill nationalism in Washington, Little England catastrophe in London, political scandal in Paris, negative bank deposit rates in Germany at a time of 1.9 per cent inflation (Weimar, achtung baby!), a Marxist Leninist palace coup in Beijing and a nuclear armed Tsar reclaiming his empire. Other than all this, the Queen is at Ascot, the Tories are in power, all's well with the world, duckies!
One of the loveliest parts of Europe is Alsace-Lorraine, a land steeped in blood for centuries. The EU was built on the ghosts of the 50 million dead in two world wars. France still remembers Vichy, Petain and Darlan - the political elite will gang up to deny Marine the Elysee Palace. The SPU-CDU coalition will defeat AFD in Berlin's Bundestag. The EU will survive, because its real architects are those 50 million ghosts, the two lost generations of the 20th century. Never again.
The writer is a global equities strategist and fund manager.