Despite the uncertainty surrounding Trump's economic policies, the US dollar continues to strengthen, driven by international investors seeking a safe haven. Experts attribute this paradoxical phenomenon to the anticipated inflationary pressures stemming from Trump's proposed tariffs, immigration restrictions, and tax cuts.
International investors continue to view the dollar as a safe haven, despite the looming threat of inflation and labor market turmoil. Gary Ng, senior economist for Asia Pacific at Hong Kong-based Natixis Corporate and Investment Banking, believes Trump is likely to prioritize US domestic demand through higher tariffs. While Trump's unconventional economic policies might typically send investors scrambling, the US currency has been steadily strengthening.
Since September, when Trump's chances of reelection became apparent, the dollar's value against major global currencies has been on the rise. This surge is attributed to international investors perceiving the dollar as a safe haven, driven by a global desire to convert holdings into dollars, anticipating further appreciation under Trump's presidency. The euro has lost 4.9 percent against the dollar, while the pound sterling and Chinese yuan have declined by 5.2 percent and 1 percent, respectively.Contrary to expectations, experts offer an explanation for why Trump's unconventional economic approach is bolstering the dollar: the anticipated turbulence in the US economy is, paradoxically, a source of strength. Yougesh Khatri, an associate fellow at British think tank Chatham House, explains that tariffs and other policies, such as mass deportations, would put upward pressure on prices and wages in the US, leading to higher interest rates. Trump's economic agenda centers around three key policies: higher tariffs, reduced immigration, and lower taxes. Each of these, according to Thierry Wizman, a currencies strategist at Macquarie, contributes to inflation. Tariffs directly impact consumers through increased prices, while immigration restrictions limit the supply of labor, potentially driving up wages and costs. Tax cuts, on the other hand, inject more disposable income into the economy, stimulating demand and inflationary pressures
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