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growth, and, in the event, the 10Y UST yield at 2.34% would not seem too high. The dollar will continue to smile. Previously, we made the suggestion that the US dollar is on the right side of the Dollar Smile against the majors, but it is on the left side of the Dollar Smile against the EM currencies. Reaganomics-Lite should be positive for the dollar, even if the US’ twin deficits could widen. ‘America First’ means that there will be a bifurcation in economic prosperity, that economic strength in the US will no longer translate, with the same elasticities as before, into prosperity in many parts of EM. (1) The dollar has begun a consolidation phase this week. But my guess is that it will be temporary and shallow, partly because the data (ISM and NFPRs) will be sufficiently strong to justify another Fed rate hike on December 14. The weekly claims data remain extraordinarily strong, while the second derivatives in the data in much of EM have ceased to be positive. (2) Further advances in the dollar, however, will of course depend on the policy announcements and delivery by the Trump Administration, as well as an apparent lack of an economic strategy in other countries. (3) Yield differentials have helped the dollar advance vis-a-vis the JPY and the EUR. However, I should note that the EMU economies are not doing that badly, though credit demand remains weak. PMI remains well above 50 and inflation has bounced away from zero. The main factor — other than yield differentials - weighing on the EUR 1s the risk that we will see more political uncertainty in Europe. (4) I came across an editorial arguing that Mr Trump’s protectionist policies would hurt the dollar’s international standing. While this may be a popular view — that the US, as a savings deficit nation, needs a globalised world to finance its external balance —I contest this conclusion. I think it will be extremely difficult for the international status of the dollar to be supplanted, even with Mr Trump as the President. The dollar losing its hegemonic status has been a popular thesis by many academics over the last twenty years — precisely the period when the dollar’s international and reserve currency status has risen. In many ways, the sturdiness of the dollar’s global status has surprised some people, because globalisation is supposed to lead to a multi-polar world where the US loses its dominance. That is certainly true for the real economy, but exactly the opposite has happened for the dollar. This is a point I’ve tried hard to make over the years, that financial globalisation is uni-polar, even though trade globalisation is multi-polar. Look at how the rise in the dollar is hurting, disproportionately, the high-yield and EM currencies. Further, which currencies might replace the dollar? The EUR itself is still in an existential crisis; nothing needs to be said about the JPY; China could not even dare opening up its capital account. In fact, Beijing has just issued even more ‘strict controls’ on overseas investment, after experiencing some USD207 billion in outflows in Q3 2016. Just because President Trump’s prospective trade policy may not be politically correct HOUSE_OVERSIGHT_026641