Assessing the risk of currency-market intervention

Originally published on July 23

This report assesses the risk that the US may intervene in currency markets to depress the foreign exchange value of the dollar.
The most immediately-striking aspect of this issue is that there is no underlying problem here for policy makers even to resolve.  The position of the US balance of payments is actually grounds for optimism in the cyclical economic outlook, particularly given that it is contemporaneous with a large and likely-rising federal government fiscal deficit.
An intervention in currency markets might be important on symbolic grounds.  If it were interpreted as part of a general escalation of the trade conflict, then that might be taken as a negative, not because currency intervention matters, but because the trade conflict itself does.  And even independent of that broader issue, the intervention might spark a brief risk-off.  
But to take down market exposure for fear of this purely-transitory risk per se does not seem a high-odds strategy. Our attention should probably be focused on other more-relevant issues, rather than being distracted by this click bait.