Impact of Trade Policies on the American Dollar
US President Donald Trump's trade policies have led to a significant decline in the value of the American Dollar. This is largely due to decreased confidence in the US economy, prompting a shift from the dollar to other safe haven currencies such as the Swiss franc, Japanese yen, euro, and gold.
Currency and Asset Movements
- Investors are moving away from US assets, causing a slump in the dollar.
- Gold reached a new all-time high, and the Swiss franc hit a fresh decade high.
- There was a significant selloff in Wall Street stocks following Trump's tariff pause.
Impact on Indian Rupee
The Indian Rupee opened weak but is expected to strengthen if the dollar's decline and a reduction in oil prices continue. The dollar index, which measures the dollar against a basket of currencies, fell over 3%, dropping below 100 for the first time since July 2023.
Bond Market Dynamics
- Trump's tariff policies led to a selloff in American bonds as confidence waned.
- Foreign investors, including from Japan and China, offloaded US government debt.
Relation Between Bond Yields and Currency Value
- Higher bond yields typically attract foreign investment, boosting currency value.
- Large-scale bond selloffs make it costly for the US to finance its budget, affecting social security and other programs.
International Concerns
For the first time in 24 months, there is a noticeable demand for higher premiums on junk-rated American debt compared to European equivalents, indicating fears about the US economy's slowdown.
