Trump's trade whiplash sends dollar to three-year low - Economy
The US dollar dropped to a three-year low against the euro on Friday, falling by two percent to $1.14, as concerns over President Donald Trump's volatile trade policies weighed on global markets.
The currency later pared back some of its losses, but the sharp decline highlighted growing fears of a self-inflicted economic downturn in the US.
A weaker dollar could drive inflation in the United States by making imports more expensive, squeeze the profit margins of companies and make US markets less attractive to foreign investors.
It has been a sharp reversal of fortune for the greenback, which had soared in the wake of Trump's November election victory.
Back then, there was talk that the dollar's ascent could bring the euro down to parity with the US currency as investors welcomed Trump's plans for tax cuts and smaller government.
"The US was really at its peak," recalled Adam Button of ForexLive. "Now it's slipping in dramatic fashion."
The euros has gained almost 10 percent against the dollar since Trump returned to the White House on January 20, when the currencies stood near parity at $1.04.
It was rocked in recent days by Trump's stop-start tariffs announcements: The US leader announced universal duties last week, only to implement but quickly remove some of the harshest ones this week.
"We don't have a lot of trade wars to look back on, especially in the last 90 years," Button said. "So modern markets have never dealt with this kind of shock."
'Damage done'
George Saravelos, global head of foreign exchange research at Deutsche Bank, said that despite Trump's tariffs U-turn, "the damage to the USD (dollar) has been done".
"The market is re-assessing the structural attractiveness of the dollar as the world's global reserve currency and is undergoing a process of rapid de-dollarization," Saravelos said in a note to clients.
While Trump froze higher tariffs on scores of countries this week, he left a 10 percent universal duty that went into effect last week in place.
At the same time, he escalated a trade war with China, applying a 145 percent levy on goods from the world's second biggest economy, which retaliated on Friday with a 125 percent levy on US goods.
Some other Trump tariffs have also had staying power, such as sectoral levies on auto imports, steel and aluminium.
"Global recession is now our baseline forecast as higher tariffs and retaliatory measures take hold," said a JPMorgan Chase research note released Monday.
Still strong
Amid the unrest in financial markets, investors have turned to other assets such as gold and the Swiss franc, which have soared higher.
The movement against the dollar is "a bit of a momentum trade and a bit of an acknowledgement that the tone of US exceptionalism is being peeled back," said Briefing.com analyst Patrick O'Hare.
"You have foreign investors who are losing confidence in their US investments because of the policy volatility," O'Hare added.
Market watchers say it is too early to say whether the recent decline in the greenback portends any deeper shift.
The long-term health of the dollar is an evergreen topic of debate, and the currency has endured earlier moments of doubt.
O'Hare noted that the dollar is still "relatively strong" compared with its trading level at other times, including during the 2008 financial crisis.
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Daily News Egypt
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Many mainstream economists argue that the low inflation of the spring that helped boost consumer sentiment represents a calm before the summer storm, when they expect prices to rise as companies finish selling off inventories of products they had brought to the United States before Trump imposed tariffs. Friday's inflation report showed that the changeover to higher-tariff goods may have already begun to happen. 'Higher prices from tariffs may be starting to work their way through the economy,' said Robert Ruggirello, chief investment officer at Brave Eagle Wealth Management. Although tax cuts from Trump's sweeping domestic policy agenda could help mitigate higher prices from tariffs, Trump's trade war continues to risk retaliation from American's key trading partners. Higher tariffs from foreign countries could slow the US economy, risking a recession. 'Trading partners taking retaliatory action could have a lasting impact on US output and, accordingly, public finances,' said Michel Nies, an economist at Citi. That's why trade deals are so urgent: America's economy remains strong, but cracks are forming. Tariffs are a big reason why. More delays will generate more uncertainty. And those good vibes could turn bad pretty quickly. CNN's Matt Egan contributed to this report.
