Economists warn that international trade tensions could have a greater impact on the US dollar, and this risk is not fully reflected in current exchange rates. Analysis shows that the recent appreciation of the dollar is mainly driven by fundamental factors such as economic data and interest rate differentials, while non-fundamental factors (such as trade tensions) contribute only 1% to 1.5% to the dollar's value.
Impact of Tariffs on the Dollar under Different Scenarios
Experts point out that the future trend of the dollar largely depends on the scale and speed of tariff policy implementation. Through simulation analysis, economists have proposed two possible scenarios:
- Permanent Tariff Implementation: If the US achieves a permanent decoupling from globalization through tariff policies, the dollar may see a "substantial" appreciation. The larger the scale of tariffs and the faster the implementation, the more noticeable the appreciation of the dollar and its impact.
- Negotiation Strategy Tariffs: If tariffs are used only as a negotiation tool, the dollar's appreciation will be smaller and shorter in duration. In this case, the market may expect the Federal Reserve's policies to be relatively moderate, and the negative impact on global economic growth will not be too significant.
The actual situation may be a mix of these two scenarios. Experts note that different countries may face different impacts. For example, the currencies of Mexico and Canada might depreciate by 5% or more due to trade policy uncertainty.
Uncertainty in Future Dollar Trends
Although the recent US dollar index (reported at 105.92 as of 9:33 AM on November 29th, Beijing time) shows strength, analysts believe that the future trend of the dollar's appreciation may not be linear. Adam Slater, Chief Economist at Oxford Economics, states that the current currency market has not fully priced in the tariff risks. Especially when potential trade sanctions against countries like Mexico and Canada are not yet clear, related currencies may experience greater volatility.
Furthermore, the strength of the dollar is also influenced by the policy stances of other major global economies. For instance, the euro may weaken in early trade negotiations, but if the European Central Bank maintains a hawkish stance, the euro might rebound.
Policy Uncertainty Increases Currency Market Risks
As the US's new government policy stance becomes clearer, the foreign exchange market may see more major fluctuations in the coming weeks. Experts anticipate that the extent of the Federal Reserve's policy adjustments, progress in trade negotiations, and global economic growth expectations will all become important variables affecting the dollar trend.
Although the result of the US election has already triggered significant market repricing, there is still uncertainty regarding the specific direction of future policy implementation, which will exacerbate volatility in the global currency market. Investors need to closely monitor US trade policy and Federal Reserve developments to respond to potential market shocks.
