The emergence of Donald Trump as the president of the United States has been predicted to be the beginning of the dollar surge. Although there is uncertainty in the financial markets, the price momentum is the same as when Trump first took office in 2016.
Market analysts have predicted that loose fiscal policies could be the trigger needed to fuel the United States’ economic growth. The expectations have caused a price swing in the stock market, pushing the prices to new highs. There is also speculation that policies like tax cuts and deregulations could be used to boost profits for United States-based firms.
Fed Chair Powell wants to maintain rate cuts in November
The Federal Reserve may be considering higher interest rates under this administration than the others due to higher deficits and revived inflation. The higher rates have been chosen despite the rate cuts that started in September.
The central bank announced fresh cuts on November 7, slashing benchmark rates by a quarter of the percentage points to the 4.5%-4.75% range from the previous 4.75%-5% range. Federal Reserve chairman Jerome Powell noted that the rates may be stable during the committee meeting in December instead of making the cuts as projected.
The committee is confident of inflation going to 2% as it projected in its last meeting in September. The rate cut has pushed the dollar up against other currencies in the financial market. During the campaign, Donald Trump talked about the introduction of tariffs. If he pulls it off, it could be a game-changer regarding the global economy.
The same action has been seen before; the same action that occurred when Trump assumed office in 2016. The Donald Trump regime slapped a 25% levy on half of everything brought in from China in 2018. The action pushed the yuan by 10% below the dollar. Dollar imports in the United States did not change, with the tariffs imposed having little effect on the inflation in the country before the pandemic in 2020.
Trump’s policies potential effect on emerging markets
If Trump actualizes his plans for stricter tariffs after assuming office, the affected countries could witness weak currencies. After the United States deployed its tariffs against, China witnessed outflows of close to $1 trillion between 2015 to 2016
Trump mentioned that a 60% tariff will be levied on all imports from China. If it happens, the country’s currency could fall by 50% against the dollar, maintaining stability in the currency.
According to speculations, such development will cause shock across emerging markets, causing other Asian currencies to follow the yuan. The market instability will cause commodity prices to slide after being acted upon by the tariffs. With the global market pegged to the United States dollar, emerging markets could suffer low purchasing power alongside rising dollar concerns.
A strengthened United States dollar has always clashed with a weakened economy. The rise in the dollar affected the trade and finance of the global economy. The most impact was seen on non-US trades using the dollar for invoice. It accounts for 40% of the worldwide trade.
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