US dollar suffers worst start to a year since 1973 over Trump tariff concerns

News.com.au

3 days ago

The US dollar suffered its worst first-half decline in more than 50 years as fears over President Donald Trump's tariff policies have driven down the world's principal reserve currency.
The greenback weakened 10.7 per cent in the first six months of the year compared to a basket of currencies from major trading partners – the worst drop since 1973 when President Richard Nixon stopped tying the dollar to the price of gold.
But its decline could be part of Mr Trump's broader vision to devalue the dollar — an idea reportedly floated by Stephen Miran, recently appointed Chairman of the US Council of Economic Advisers in what has been dubbed the Mar-a-Lago Accord. Miran has denied this conspiracy in the past.
A weaker dollar makes US exports much cheaper, and could aid Mr Trump's oft-stated goal of boosting manufacturing at home, as well as reducing the nation's trade deficit, the thinking goes.
When he was campaigning for a second term, an official in the first Trump administration told Politico that 'currency revaluation is likely to be a priority' because of 'the viewpoint that [an overvalued dollar] contributes to the trade deficit.'
Trump has not weighed in on the speculation about devaluing the dollar.
'President Trump has repeatedly affirmed his commitment to the dominance of the dollar as the world's reserve currency,' White House press spokesman Kush Desai told The Post on Tuesday.
'Ten-year Treasury yields rallying down nearly 40 basis points since Inauguration Day, four consecutive expectation-beating inflation reports, and the trillions in historic investment commitments that have poured into the United States since Election Day are all indicative of the confidence that investors and markets continue to have in our economy and currency.'
But many experts claim Mr Trump's hefty tariffs are putting pressure on the dollar and forcing global investors to rethink their ties to the currency.
'Trump is definitely playing with fire,' Stephen Miller, a consultant for GSFM, a unit of Canada's CI Financial Corp. in Australia, told Bloomberg.
While a weaker dollar should theoretically help US exporters, there's still a lot of uncertainty when it comes to global trade because of the Trump administration's ongoing negotiations with key nations, which are staring down a fast-approaching July 9 deadline.
The dollar's fall comes after it soared on Mr Trump's re-election win and peaked in mid-January on hopes he would bring a pro-growth mindset to the White House.
But in April, Mr Trump's 'Liberation Day' announcement revealed tariffs that were much stiffer than analysts and economists had predicted, spurring a broad shift away from US investments.
'Full-scale de-dollarisation, if it ever comes, is still a long way away,' Rick Rieder, chief investment officer of global fixed income at BlackRock, said in the company's most recent forecast.
But the drop in confidence in the US dollar, which is typically seen as a safe haven asset, is concerning – and could worsen with a rise in government debt, according to Rieder.
Mr Trump's massive budget bill, which is projected to add $3 trillion in national debt, narrowly squeaked through the Senate on Tuesday. It awaits final approval in the House.
The concerns over higher inflation and debt have pushed long-term Treasury yields lower. The 10-year yield started near 5 per cent this year and has steadily fallen, reaching 4.267 per cent on Tuesday.
'I think we're going to continue to have this higher pressure on the low end of the yield curve because we haven't really dealt anything away with the deficit or inflation for that matter. In fact, there's more risk now than anything,' Ben Emons, founder of FedWatch Advisors, said on CNBC's 'Fast Money' Tuesday.
'I do think it's related to Treasuries, that if Treasuries get more under pressure, the dollar will get weaker.'