Dollar falls after Donald Trump hints at softer stance on China tariffs
- Adam Edwards
- Jan 25
- 2 min read
So, something I'm looking at with my studies is FX rates and what impacts them, and I saw this article in the FT. Something not really covered in what I've looked at, is the impact of tariffs on the value of currency so I thought I've have a read and see what else I could find to explain the headline.
The key thing I took from the article is that the fluctuation is due to:
Improved Global Trade Sentiment: Easing trade tensions between the U.S. and China fosters a more optimistic global trade environment. This optimism often encourages investors to seek higher returns in emerging markets, leading them to sell U.S. dollars in favor of other currencies.
Shift in Risk Appetite: A potential reduction in tariffs diminishes perceived risks in international markets. Investors may move away from the safe-haven U.S. dollar towards riskier assets, such as stocks or higher-yielding currencies, thereby reducing demand for the dollar.
Anticipation of Lower Inflation and Interest Rates: Lower tariffs can lead to decreased import costs, potentially reducing inflationary pressures in the U.S. This scenario might prompt the Federal Reserve to maintain or lower interest rates, making the dollar less attractive to investors seeking higher yields.
Recent market reactions illustrate these dynamics. Following President Trump's comments suggesting a preference for negotiation over imposing tariffs on China, the U.S. dollar experienced a decline. The Australian and New Zealand dollars, often seen as proxies for Chinese economic prospects, surged to five-week highs. The Chinese yuan also strengthened, reaching its highest level in six weeks against the dollar. (article)
Additionally, the British pound rose against the dollar, influenced by uncertainties surrounding U.S. tariff policies. The lack of immediate tariff implementations led to a sell-off of the greenback, as investors reassessed their positions in light of the evolving trade landscape. (article)
These instances underscore how hints at reduced tariffs can lead to a weaker U.S. dollar by altering investor behaviour and expectations in the global financial markets.