The once haven of the US dollar has changed into a matter of world pressure and transnational tensions. That change came when President Donald Trump started imposing tariffs on some countries. He mentioned “We’ve already seen evidence of this shift in the Treasury market, with a vast leg higher in borrowing costs this past week — a telltale sign of an offshore capital rotation.”
Shift in Investor Confidence
National Australia Bank analysts report that investors recommended a change in sentiment towards the US dollar: People have quickly discovered that the US has lost its valuable and currency qualities. Part of the reason for such decline is that the US is perceived as losing its exceptionalism and that her economy might pay a higher cost for the tariffs that are being implemented.
Currency Market Reactions
The dollar continued to weaken during the year, reaching a 10-year low against the Swiss Franc and its weakest level against the euro for more than three years. The Bretton Woods system had enshrined the dollar as a global reserve currency since 1944, but recent trade actions have led some to reconsider that view.
Impact of Trade Policies
Trade policy has always been uncertain as far as markets are concerned. First, the administration delivered tariffs, then more tariffs and device-targeting tariffs, then tariff adjustments, and now messaging for a trade war with China has made the US administration’s observers lose faith. These have resulted in enormous volatility in every country’s stock market.
Effect on Economy and Market
Analysts said these could have economic consequences. Some US economists at the ANZ group wrote that the United States’ international standing has weathered some damage, and the world economy has become less stable than pre-tariff. Even so, and as also dissected by financial market strategists, US dollar swap spreads and, very recently, Treasury yields have been moving as if the relatively high liquidity and safety of US assets have lost some value.
Future Market Considerations
While less pernicious activists feel that the latest greenback depreciation is only brief, traders confronted by a lasting erosion of the dollar’s safe-haven may discover it tricky going ahead. If dollar’s fall, they may raise US rates, harming bonds and stocks. Reports have also highlighted the significance of these trade policies against the backdrop of the US’s strategic reliance on foreign money.
