US Dollar (DX=F, DX-Y.NYB) has been volatile since Donald Trump's inauguration, retreating from nearly two-year highs as the president failed to enact broad tariffs on his first day in office.
The move surprised investors as an emergency order would have allowed for immediate tariff hikes unlike the alternative process of investigations, which are likely to take longer to complete.
Still, the dollar recovered about half of its losses after the president later said that tariffs on Mexico and Canada could be imposed by February 1. It is also issue a memorandum direct federal agencies to evaluate US trade policy, which could eventually lead to blanket tariffs across a variety of trading partners.
Mohamed El-Erian, chief economic adviser at Allianz, told Yahoo Finance's Morning Brief program that the dollar's gains and losses signaled a new normal for markets.
“The message is that this is not a one-day event,” he said, noting that there are upside and downside risks. “This is something that is going to stay with us.”
To that point, Morgan Stanley strategist Michael Zezas and economist Michael Gapen said in a note Tuesday that Trump's back-and-forth rhetoric “reminds us that vigilance is needed as the US policy path could evolve rapidly .” The team maintained its stance that any likely policy adjustments would not be felt until the latter half of the year.
The greenback's recent price action has been largely driven by two main catalysts: the election of Trump and the subsequent Republican campaign, along with a recalibration of future Fed easing in the face of strong economic data.
After hitting a September low, the US Dollar Index (DX-Y.NYB), which measures the value of the dollar against a basket of six foreign currencies (the euro, Japanese yen, British pound, Canadian dollar, Swedish Krona, and Swiss franc), has accumulated almost 10%. Since the election, it has climbed around 5%.