When a country imposes tariffs, its national currency has typically been found to strengthen according to a study performed by the International Monetary Fund. However, after President Trump announced far steeper “reciprocal” tariffs than had been expected on what he called ‘Liberation Day’, not only did the stock markets take a nosedive, but so too did the US dollar.
The dollar surged after Trump won the 2024 presidential election in November as investors expected economic growth on the back of deregulation and tax cuts. It peaked at over 190.6 on the index that tracks the value of the dollar against six major currencies.
However, since Trump’s inauguration the dollar has weakened, taking a major plunge when he announced he would impose tariffs on Canada, Mexico and China and another that began on Wednesday. It is currently at just above 102 on the index.
Why Trump’s tariffs have made the US dollar value fall
Trump’s erratic policy decisions on tariffs have given investors a case of the jitters causing selloffs on Wall Street. His ‘Liberation Day’ announcement was timed to come after markets had closed on Wednesday, but the following day the Dow, S&P 500 and Nasdaq all took heavy losses, plunging 4.36%, 8.04% and 5.97% respectively.
Investors are also worried that the tariffs could trigger a major global economic slowdown as well as drive inflation back up. But they think that the tariffs will take a heavier toll on the US economy than those of other major countries.
Part of the reason is that the White House hasn’t announced any support measures for the US economy, says Chris Turner, head of currency strategy at ING, in a note. For example, in his first term, Trump and Republicans passed a swath of tax cuts before tariffs were announced he points out.
“The blowback of US tariffs onto the US domestic economy leaves the dollar naked,” he wrote. “US rates continue to be marked lower, and not until we get some surprisingly good news from the US on tax cuts or deregulation may the dollar start to find some support.”
Get your game on! Whether you’re into NFL touchdowns, NBA buzzer-beaters, world-class soccer goals, or MLB home runs, our app has it all.
Dive into live coverage, expert insights, breaking news, exclusive videos, and more – plus, stay updated on the latest in current affairs and entertainment. Download now for all-access coverage, right at your fingertips – anytime, anywhere.
