Editor
The dollar has risen to its strongest point in over a week, thanks to new trade war threats from President Trump that have worried investors everywhere, from Tokyo to Seoul and beyond.
Tariffs Trigger a Greenback Rally
On Monday afternoon in New York, the U.S. dollar rose by 0.6% against a group of major currencies. This surge picked up speed after Trump announced that he would be implementing 25% tariffs on a range of goods from Japan and South Korea, which surprised some people in the market.
Julia Ren, a senior FX strategist at Everstone Advisors, noted, “The mood turned sour fast.” Right now, it seems like the dollar is back in safe-haven mode as investors pull away from riskier investments.
The Bloomberg Dollar Spot Index even reached its highest point since June 26. Meanwhile, currencies in Asia struggled, with Japan’s yen dropping over 1% to its lowest in almost two weeks and South Korea’s won following a similar trend.
‘Liberation Day’ Tariffs Hang Over Markets
Recently, new tariffs were introduced as part of what former President Trump called his “Liberation Day” initiative, which he first presented back in April. This campaign aims to tackle what he sees as unfair trade advantages held by important U.S. partners. The tariffs are set to take effect on August 1, unless countries can negotiate side agreements by the upcoming Wednesday deadline.
Treasury Secretary Scott Bessent tried to calm things down on Sunday, saying that discussions are still ongoing. He reassured reporters in Washington, “This isn’t the end of the road. There’s still room for compromise.”
However, this policy has stirred up concerns that a tough trade approach could end up hurting both trade partners and the U.S. economy. Even though the dollar has bounced back recently, it’s still nearly 9% lower this year, mainly due to fears that these tariffs might push the country toward a recession.
Stronger Payrolls Lend Support
Last week, the dollar gained strength thanks to a strong jobs report showing that US employers added more jobs than many people anticipated. As a result, traders have adjusted their expectations for how much the Federal Reserve might lower interest rates this year. They’re now looking at about a 51 basis-point cut by December, down from 65 just a week earlier. Erik Dalgaard, a chief strategist at Nordic Mercantile, pointed out that solid job numbers make it tougher for the Fed to go for big rate cuts when the job market remains in good shape.
Emerging Markets Take a Hit
The impact of the recent tariffs is being felt not only in Japan and South Korea but around the world. On Monday, the MSCI index, which tracks currencies in emerging markets, fell by 0.5%. This drop follows President Trump’s suggestion of an extra 10% tax on countries he claims support the anti-American stance of the BRICS nations.
Among the hardest hit was South Africa’s rand, which dropped about 1%. Other currencies like India’s rupee, Brazil’s real, and China’s offshore yuan also declined, indicating that traders expect tensions to linger.
Mia Park, an analyst at Seojin Research in Seoul, pointed out that South Korea is particularly vulnerable due to its strong industries in batteries, chips, and automobiles. While the initial 25% tariff news surprised many, she believes Asian stocks typically recover after a quick shock. We’ll just have to wait and see what happens next.
Where Does the Dollar Go From Here?
Right now, people are still relying on the dollar as a safe option, even with all the unpredictability from Trump’s tariffs. Ren from Everstone Advisors pointed out that this is typical behavior for the dollar—during a crisis, folks tend to flock to it, even if the U.S. is creating the chaos. Looking ahead, everything hinges on whether any last-minute deals will happen. If they don’t, we could see a rocky August as tariffs start to take effect and central banks consider their next steps. Dalgaard cautioned that if no one backs down in the next couple of days, the dollar might gain strength, but that could seriously impact global growth.
