The Volatility of the US Dollar Since Trump’s Inauguration
The US dollar has been on a rollercoaster ride since Donald Trump’s inauguration, with the currency experiencing significant volatility in recent days. The dollar initially retreated from near two-year highs as the president failed to enact broad-based tariffs on his first day in office, surprising investors who were expecting immediate action.
However, the dollar managed to regain about half of its losses after Trump hinted at imposing tariffs on Mexico and Canada by Feb. 1. The president also directed federal agencies to evaluate US trade policy, potentially leading to blanket tariffs across various trading partners in the future.
Mohamed El-Erian, chief economic adviser at Allianz, commented on the dollar’s fluctuation, stating that the market should expect both upside and downside risks to persist. He emphasized that this is not a one-time event but rather a new normal for markets.
Morgan Stanley strategists Michael Zezas and economist Michael Gapen echoed El-Erian’s sentiments, cautioning that vigilance is necessary as the US policy path could evolve quickly. They maintained that any policy adjustments are unlikely to be felt until later in the year.
The recent movements in the greenback have been driven by Trump’s election and the subsequent Republican sweep, as well as the recalibration of future Federal Reserve easing in response to strong economic data. Despite hitting a low in September, the US Dollar Index has rallied nearly 10% and climbed about 5% since the election.
Overall, the US dollar’s volatility reflects the uncertainty surrounding Trump’s trade policies and their potential impact on the global economy. Investors and analysts alike are closely monitoring the situation as they navigate through these uncertain times.
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