Donald Trump's Hefty Tariffs Jeopardize Dollar Prices

US President Donald Trump levied retaliatory tariffs on commodities from practically every country in the world, aiming to restore America's lost greatness. However, the announcement of those tariffs and subsequent confirmation of their suspension had the opposite impact. That is, the dollar, which was one of his tools, has begun to lose value.

The US currency has been weakening over the past several months. As of April 18, the last trading day of the previous week, the dollar index stood at 99.23. Back in January, it was at 110, indicating a decline of 9.31 percent. Notably, on April 11, the index dropped below 100 for the first time since July 2023.

Since the beginning of April, the dollar has dropped 5% against the euro and pound, and 6% against the yen. The dollar is rapidly losing power following US President Donald Trump's imposition of retaliatory tariffs on exports from practically every country on April 2.

However, the dollar's value has remained stable in Bangladesh's currency market for several months, indicating that it is not entirely market dependent. Although the currency's value was previously artificially maintained, it is now considerably closer to market value. However, because the currency is not fully market-dependent, the recent drop in the dollar's value in the worldwide market had little effect on the domestic market.

According to experts, the dollar shares similarities with gold, as it is considered one of the safest investment options globally. This strong reputation contributes to its widespread popularity. However, during times of global economic uncertainty, investors who move away from stocks and bonds in favor of safe assets like gold or the dollar often end up pulling back from the U.S. currency as well.

The risk of a recession has increased following the announcement of new tariffs, making investors more hesitant to lend to the U.S. government. Additionally, the ongoing major conflict with China has sparked fears of prolonged stagnation in both the U.S. and global economies. As demand for U.S. Treasury bonds drop, so does investment in the dollar. This leads to a decline in the dollar’s exchange rate.

Most of the economists believe that a strong dollar helps keep interest rates on US debt low. This continues to drive demand for US bonds, despite the country's debt being 120 percent of its GDP. Additionally, because global trade is largely conducted in dollars, the United States enjoys significant influence over the international economy. However, experts warn that if investor confidence in the dollar weakens, the US economy could falter with ripple effects across the world.

If worldwide or total US trade drops, demand for the dollar will fall even further. There is a danger that this will worsen the problem. In other words, Trump's trade policy is coming back at him.

Dollar has plunged to a three-year low since U.S. President Donald Trump triggered the volatility with his sweeping new tariff policy on April 2, falling another 0.65% earlier on Monday. Meanwhile, the euro was choppy on Monday, paring gains against the greenback to fall 0.3% in the afternoon.

While U.S. stocks saw extreme moves in both directions as traders reacted to a fast-moving news flow, the dollar was on a downward path through all last week, despite conventionally being a so-called “safe haven asset” during volatile periods. Traditional wisdom would also dictate that the dollar would gain if tariffs push the U.S. Federal Reserve to act with more caution in cutting interest rates this year, fearing a resurgence in inflation.

The euro has jumped from around $1.079 at the start of the month to $1.138, at times popping above the $1.14 level for the first time since February 2022. That has again come in spite of firmer expectations for the European Central Bank to rate cuts this year, amid concerns over slower economic growth in the euro area.

The scale of the dollar’s decline — along with a sell-off in U.S. Treasurys — has “wrong footed investors,” James Lord, global head of foreign exchange and emerging market strategy at Morgan Stanley, told journalists “Squawk Box Europe” around one week ago.

“At the beginning of the year, being bullish on the dollar was one of the more popular and consensus trades. That hasn’t worked out very well,” Lord said.


Mahfuz Ul Hasib Chowdhury
is a contributor to different
English newspapers
and magazines.