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2024/11
Wisunofx Market Update: Dollar Rebound Unlikely to Last, Trump's Tariff Delay Could Be a Key Variable
After the recent U.S. presidential election, the dollar surged! The post-election dollar movement is typically influenced by multiple factors, including the direct impact of election results on market sentiment, changes in expectations about U.S. economic policies, and fluctuations in global risk aversion.
Experts at Desjardins Bank suggest that the dollar’s rise may be temporary, especially if the proposed tariffs are delayed until 2025 or 2026. This delay could offer a brief respite for the global economy. Additionally, if U.S. companies accelerate overseas procurement before the tariffs take effect, this could boost the value of other currencies against the dollar.
Another factor that could lead to exchange rate volatility is the trend in monetary policies.
Desjardins Bank predicts that the U.S. economy will struggle to maintain its current growth rate, potentially prompting the Federal Reserve to implement multiple rate cuts. This more cautious approach is expected to address inflation issues that could be triggered by the Trump administration.
Desjardins Bank’s chief economist, Jimmy Jean, stated that if tariffs are delayed until late 2025 or even early 2026, the global economy could experience a short-term respite. Moreover, if U.S. businesses rush to procure goods overseas before tariffs are implemented, multiple countries could benefit, which would briefly strengthen other currencies against the dollar.
Impact of Tariff Policy:
1. Background of Tariff Delay
Trump’s decision to delay tariffs on certain imported goods is intended to reduce the direct impact on U.S. consumers while injecting confidence into the economy. However, it could also signal weak economic growth, causing market doubts about the dollar’s outlook.
Market Interpretation: Although the tariff delay temporarily eases international trade tensions, it weakens the dollar’s appeal as a safe-haven asset. Investors may turn to other assets, such as gold or non-U.S. currencies, reducing the momentum of the dollar’s rise.
2. Other Limitations to the Dollar’s Rebound:
Lack of Strong Economic Support: The dollar’s rebound relies more on market sentiment than on any improvement in economic fundamentals. If U.S. economic data underperforms expectations, it could exacerbate downward pressure on the dollar.
Federal Reserve’s Wait-and-See Approach: The Federal Reserve is still weighing economic data and global risks, which means it may keep interest rates steady or adopt more cautious policies in the short term, limiting the positive impact on the dollar.
Global Economic Rebalancing: Other major economies (such as the EU, China) may promote growth through policy adjustments, which could weaken the relative strength of the dollar.
Key Factors Limiting the Dollar’s Rebound (Based on Desjardins Bank’s Latest Economic Forecast):
1.Uncertainty in U.S. Economic Policy:
Post-Election Policy Expectations: Although the dollar rose after the election due to market optimism about the new administration’s policies, the actual effects of these policies, especially those related to fiscal stimulus, trade, and debt management, remain unclear.
Fiscal Deficit Issues: If the new government undertakes large-scale stimulus programs, it could further increase the fiscal deficit and put mid-term pressure on the dollar.
2.Monetary Policy of the Federal Reserve:
Interest Rate Policy: The Federal Reserve’s statements and potential future rate hikes will directly impact the dollar’s performance. If expectations for rate hikes diminish, the dollar could face a correction.
Inflation and Employment: If U.S. economic recovery slows and inflation or employment data disappoints, the Federal Reserve might maintain a dovish stance, weakening the dollar’s appeal.
3.Global Market Risk Appetite:
Reduced Demand for Safe Havens: The dollar is typically a safe-haven currency. After the election, if global markets stabilize, decreased risk aversion could weaken the dollar’s strength.
Other Central Banks’ Policies: If the European Central Bank, the Bank of Japan, and other major central banks adopt stronger monetary policies, this could push the euro, yen, and other currencies to compete with the dollar.
4.International Capital Flows:
Capital Outflows: Capital that flowed into the U.S. during the election period for safety may gradually exit, especially if new government policies fail to boost corporate earnings or market confidence.
Geopolitical Factors: If U.S. foreign policy leads to a reduction in global tensions, international capital may flow back into emerging markets and other higher-yielding regions.
Investment Recommendations:
1.Short-Term Trading:Watch for potential technical pullback opportunities in the dollar, especially once post-election market sentiment stabilizes.
2.Diversified Asset Allocation:Consider diversifying into non-U.S. currency assets such as the euro, gold, or emerging market currencies to spread risk.
3.Long-Term Trend Observation:Focus on the concrete outcomes of U.S. policy execution and the Federal Reserve’s direction, adjusting foreign exchange investment strategies dynamically.
Conclusion:
Trump’s decision to delay tariffs has temporarily eased market pressures but could limit the dollar’s safe-haven appeal, potentially becoming a roadblock to its further rally. Without clear economic fundamental support, the dollar’s rebound may not be sustainable. Bulls should remain cautious and keep an eye on how policy changes affect the market in the long term.
This forecast suggests that while the dollar is currently strong due to market sentiment and risk aversion, its upward momentum is uncertain. In the short term, the dollar may continue to strengthen due to sentiment factors, but in the medium to long term, its trajectory will depend on U.S. economic fundamentals, policy implementation, and structural changes in international markets.
