After Donald Trump's victory in the US presidential election, the US dollar has shown steady growth, reaching multi-year highs. This is driven by investors' expectations regarding the newly elected president's economic measures aimed at stimulating growth, increasing inflation, and reducing the likelihood of aggressive interest rate cuts by the Federal Reserve. Notably, the dollar index has risen by almost 10% from the lows of late September.
However, Trump's plans to introduce tariffs and significant tax cuts may have an ambiguous impact on the currency market. These measures could lead to higher inflation, which may force the Federal Reserve to refrain from further rate cuts or even raise them. This could strengthen the dollar further, complicating global trade, increasing costs for non-US companies, and influencing the monetary policies of other countries. Countries with large trade surpluses with the US, such as China, are likely to be particularly affected.
Moreover, there are contradictions in Trump's policy towards the dollar. On the one hand, he seeks to weaken the dollar to support exports and protect jobs; on the other, he wants to maintain its strength to uphold global financial dominance. These contradictions could lead to instability in currency markets and complicate the administration's economic goals.
Thus, while the dollar remains one of the world's most profitable currencies for now, the future policies of Trump's administration could significantly affect its position. Investors should closely monitor developments and adjust their strategies in line with the new economic realities.
Author Andrew Azarov