‘Trump trades’ start to misfire, dollar weakens

The “Trump trade” that was supposed to favor America is doing the exact opposite. Investors are now more negative about the effects of the new US administration’s global trade war on the economy. Since the start of 2025, the US dollar has gone down, and Treasuries have gone up. 

The value of the US dollar has gone down 0.2% so far this year. Ten-year Treasury yields, which go up and down with prices, hit 4.8% in January. It was their highest level since late 2023. Why? Expectations of higher inflation.

Now, they have gone back down to 4.53%. This time, the market is worried that the new president could hurt the US economy, which was doing well before.

Jerry Minier, co-head of G10 forex trading at Barclays, said, “Despite what it feels like, if you really zoom out to the beginning of this year, a lot of the [Trump] trades haven’t worked […] That is causing people to reassess.”

Dollar underpinned by latest tariff moves; eyes on Powell, US inflation

The dollar firmed on Tuesday after U.S. President Donald Trump moved to substantially raise tariffs on steel and aluminium imports and said he would announce plans to impose reciprocal tariffs pic.twitter.com/vaTaIyePss

— Chris Wealth Management Pvt Ltd (@chriswealthman1) February 11, 2025

The POTUS seems to have realized that things are working differently from his first term. This is because, at the last minute this month, he changed his mind about threatening to put huge taxes on Mexico and Canada. He gave both countries 30 days to prepare. 

This delay has given investors a chance to plan themselves even as they ask him to reconsider imposing the tariffs. What are the chances?

Trump is still using tariffs to threaten other nations. In fact, to fix the trade imbalance with the US’s most important ally in the Indo-Pacific, he went ahead with plans to add 10% more tariffs on China’s imports. In addition, last week, the president said he might also add new tariffs on Japan.

He has also said that he wants to put 25% taxes on imports of steel and aluminum. 

The dollar fall’s impact on the global market

From the end of September 2024 to the end of the year, the US dollar went up 8% against a group of other currencies. Mostly, the rise in the dollar was caused by bets that Trump’s policies would make it harder for the Federal Reserve to cut interest rates and slow down growth in trade partners of the US.

In retrospect, tariffs put in place by the president have not been as harsh as many people thought they would be. However, a lot of people have been worried that the instability caused by the trade war could start to hurt people’s faith in the US economy. This would weaken the market’s positive response to Trump’s victory in November.

Torsten Slok, chief economist at investment firm Apollo, said, “There’s an underlying fear that growth might be slowing down, ”with a trade war […] potentially having some growth implications.”

Many analysts thought that the trade war and a stronger dollar would hurt emerging markets the most. However, that has not been the case. Emerging markets have also surprised people in recent weeks. This was not expected after a bad year in 2024 when some currencies hit multi-year lows.

Since the beginning of Trump’s second term last month, the Chilean peso has increased more than 3% against the dollar, while the Colombian peso and the Brazilian real have increased by more than 6% each.

Investors say emerging market central banks have scope to cut borrowing costs to support economic growth after aggressive rate rises in recent years to tackle inflation. Last week, rates went down in India, Mexico, and the Czech Republic.

Experts say that when inflation is taken into account, real interest rates are higher in many developing countries than in the US. This means that it is smart to borrow dollars and invest in rising markets.

Cryptopolitan Academy: FREE Web3 Resume Cheat Sheet - Download Now