Will Trump’s tariffs push the greenback even higher?
The U.S. dollar has risen sharply in value versus other world currencies in the past few months, and the Trump administration’s agenda will likely play a major role in where it goes from here—which could present investors with opportunities and risks.
The dollar is up 8.1% against a broad basket of foreign currencies since late September when the Fed began cutting interest rates (see the chart).
The U.S. Dollar Has Strongly Rallied Versus Other Currencies
Although Fed rate cuts typically lead to a decline in the dollar’s value, that hasn’t been the case recently. One reason is that the U.S. growth outlook remains significantly stronger than that of other countries around the globe.
Another key driver: tariffs. The Trump administration may soon implement 25% tariffs on imports from Mexico, Canada, China, the EU, and other trading partners. Such tariffs, of course, make foreign goods costlier in U.S. dollars. This, in turn, puts downward pressure on the value of those nations’ currencies relative to the dollar. Even the expectation of tariffs can create that outcome.
Nonetheless, the details of Trump’s tariff plan are unknown. Based on the extent of the tariffs, investment opportunities among international stocks may present themselves. For example, a weaker dollar fueled by tariffs that are less aggressive than expected could act as a tailwind for overseas equities. A dollar that rises even further could dampen earnings among U.S. multinationals that generate significant revenues from other countries.
Going forward, we will carefully monitor the new administration’s actions in this area and fluctuations in the currency markets for signs of investment opportunities to pursue and risks to mitigate.
By Mike Dickson
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