NEW YORK – The US dollar jumped the most in three weeks after President Donald Trump unveiled a wave of proposed tariffs, a sign investors are confident the US economy can largely withstand the impact of trade disputes.
The greenback strengthened 0.5 per cent against a basket of peers on July 7, picking up steam after Mr Trump announced levies on a handful of countries. The Bloomberg Dollar Spot Index rose the most since June 17 and currencies across the globe slumped, with Japan’s yen, South Korea’s won and Brazil’s real among those sinking more than 1 per cent.
“The fact that some of the more problematic policies from the US administration have been dialed back – and there are deals getting done – means that the economic pain for the US won’t be as bad as originally feared,” said Skylar Montgomery Koning, a currency strategist at Barclays.
The dollar’s decline this year – down about 9 per cent – already reflects the potential negative impact from tariffs meaning foreign currencies are likely to decline more, she added.
levies of between 25 per cent and 40 per cent on countries from Japan and South Korea to Laos and Myanmar,
with more expected. They are set to enter effect on August 1.
The sweeping “Liberation Day” tariffs announced in April shook investor faith in the traditional haven status of the US currency and fueled concern the aggressive levies would push the economy into recession.
But investors have begun to recalibrate recently with last week’s strong US strong jobss data adding to support for the greenback. Pricing for Federal Reserve interest-rate cuts has eased since the jobs print, with traders betting on around 51 basis points of easing by year-end on July 7, compared with 65 basis points a week ago.
Uncertainty related to US trade policies, the economic outlook and tariff-related inflation “could push back a rate cut from where we’ve been anticipating, September, for quite some time, until December or even into next year,” Kathy Jones, chief fixed income strategist at Charles Schwab, told Bloomberg Television on July 7.
In Japan, which faces a 25 per cent tariff, the yen fell as much as 1.2 per cent to 146.24 per US dollar, the weakest level in two weeks. In South Korea, where the levy would also be 25 per cent, the won slipped about 1.1 per cent.
Singapore, which was hit with a 10 per cent baseline tariff in April, has not yet heard from the White House on Mr Trump’s latest tariff plans. The Singapore dollar was trading slightly up against the US dollar at 2.788 per greenback at 8am on July 8.
For nations elsewhere, lingering uncertainty over the final tariff rate is hurting.
The MSCI gauge of emerging-market currencies fell 0.5 per cent, the biggest intraday drop in three months. Mr Trump threatened an extra 10 per cent tariff on any country aligning itself with what he called “the Anti-American policies” of the BRICS group.
South Africa’s rand underperformed, down by about 1.5 per cent. India’s rupee, Brazil’s real and China’s offshore yuan also declined.
The term Brics originally referred to Brazil, Russia, India, China and South Africa, but has since expanded to include other developing nations.
Mr Trump has said trading partners can expect a rate anywhere between 10 per cent and 70 per cent – implying some may have to shoulder higher tariffs than expected – though he suggested some deals are in the offing, too. BLOOMBERG
