Investors Rush to the U.S. Dollar After Trump’s Tariffs: Wall Street banks, including Goldman Sachs and JPMorgan Chase,
see a significant opportunity to profit from buying the U.S. dollar,
even after President Donald Trump’s tariff policies increased the value of the currency.
According to forecasts, Goldman Sachs expects the dollar to surpass parity with the euro,
while JPMorgan anticipates the U.S. currency could reach 1.5 Canadian dollars for the first time in decades.
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The Dollar Surges After Tariff Announcement
Most asset classes declined after Trump announced new tariffs on Canada, China, and Mexico,
which were set to take effect on Tuesday.
The dollar was the biggest beneficiary.
While many traders had anticipated these tariffs since Trump took office,
his initially softened tone toward China had led to expectations that he might refrain from escalating tensions,
causing the dollar to dip briefly before rebounding strongly.
Goldman Sachs strategists, including Dominic Wilson, wrote in a research note:
“Tariffs have a direct impact on exchange rates, unlike other asset classes,”
noting that the euro could fall by 8%-10% if global tariffs are imposed.
The Dollar and U.S. Inflation
The dollar is gaining appeal as expectations rise that the trade war will boost U.S. inflation,
leading to higher interest rates from the Federal Reserve and strengthening the dollar’s role as a safe-haven currency.
On Monday, the Canadian dollar hit its lowest level in over 20 years,
while the Mexican peso, the euro, and the Australian dollar all dropped to multi-year lows.
Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole, stated:
“The primary impact on the forex market is likely to come
from increased risk aversion amid growing concerns about global economic growth,”
adding that this would further support the dollar.
The Dollar as a Safe Haven and Currency Trades
JPMorgan recommends buying the dollar and yen against currencies most affected by tariffs,
such as the Canadian dollar and the euro.
The bank estimates that a 25% tariff could push the Canadian dollar to 1.58 per U.S. dollar,
while the U.S. dollar could reach 23.5 against the Mexican peso and 7.37 against the offshore yuan.
Although the Eurozone was not directly targeted in Trump’s latest tariff announcement,
he reaffirmed that tariffs on the European Union were “definitely going to happen.”
Market Expectations and Dollar Movements
Goldman Sachs expects the dollar to maintain its strength against currencies such as the Chinese yuan,
as its safe-haven status enhances its appeal. The bank forecasts that the onshore yuan could fall to 7.5 per dollar.
Meanwhile, Citi strategists are more cautious.
They expect short-term dollar strength but suggest that the trend could
reverse as markets begin to fully assess the impact of tariffs on the U.S. economy.
Expert Market Opinions
Bloomberg strategists point out that traders still view Trump’s tariffs as a short-term negotiation tactic,
giving the dollar further room to rise, and the more extended trade disputes persist.
Ken Peng, Head of Asia Investment Strategy at Citi Private Bank in Hong Kong, commented:
“When the economic consequences start affecting the U.S., things may begin to reverse.
For now, I’d rather invest in market volatility than bet on a specific direction.”
At the same time, Canada has already responded with a 25% tariff on the U.S.,
while Mexico and China have vowed to take retaliatory measures.
The European Union has also pledged to “respond firmly” if the U.S. imposes additional tariffs.
The Future of the Dollar Amid Trade War
Eric Nelson, a macro strategist at Wells Fargo,
noted that markets might still be underestimating the seriousness of the tariff situation.
He suggested that Bloomberg’s U.S. dollar index could climb another 3%,
surpassing its 2022 highs if Trump continues to escalate threats.
Nelson also predicted that a permanent 25% tariff on Canadian imports
could push the exchange rate to 1.7 CAD per USD,
with continued depreciation expected for the Mexican peso and Chinese yuan.
Investors Rush to the U.S. Dollar After Trump’s Tariffs
