The dollar began on Monday with a poor notes after significant losses last week due to the potentially weakening the American labor market, while the fears of the global trade war led investors to safe paradise, raising Jen and the Swiss franc.
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The conventional Wall Street wisdom in November was that the tariff plans of President Electr Donald Trump would increase the American dollar. Instead, with existing tariffs, concerns about the upcoming recession overwhelmed all positive benefits for Greenback.
. Ice dollar index On Wednesday, up to 104.31 was sold before the Trump tariffs were presented. After the announcement, he fell and reached a low level of 101.27 on Thursday, which is a 3% swing in about 24 hours. Even with modest reflection on Friday, the index ended for a week, and the dollar is now weaker than before the presidential election in November.
“Trump's tariffs in a sense hit the US economy, and this is not what investors expected,” said Chris Turner, a global head of markets at ING. “Investors expected the tariffs to be stubborn for the dollar and bad for the rest of the world. But I think that the US economy was not in a strong enough position to now take these maximum tariffs.”
The American ice dollar index dropped sharply on Thursday, the day after the US tariff was announced.
While Trump at different times spoke positively about both strong and weak dollars, traders clearly took his choice as a support for green. Dollar index He gathered sharply after winning Trump On November 5, and then in the next two months he continued to climb, shortly trading above 110 in mid -January.
Since then, the index has been retreating among the growing signs of economic weakness in the US, and Trump's commercial policy has proved to be more aggressive than Wall Street bargaining.
Kathy Kriskey, head of alternative ETF strategies in Invesco, still hopes for “short -term pain, long -term profit” from the economic plan of Trump's administration, but claims that market trust is shocked.
“The currency reflects the health of the economy, so I think we are very concerned now. We believe that Trump has a plan, but we definitely don't know what this plan is,” said Kriska.
Flight in a safe place
Of course, foreign currencies have not recently moved in relation to the dollar.
Traditional safe currencies, such as Japanese yen AND French Swiss I saw one of the biggest profits. But more economically sensitive currencies, such as Australian dollar Turner said they were more related to goods that lost in relation to the dollar, especially on Friday, which looked like a “more traditional day of risk.”
A flight in a safe place in other asset classes also has a mechanical effect on the currency market. For example, a decrease in the profitability of the US treasury means that less attractive foreign investors are having dollars or bonds in the US and collecting interest, while the dropping of American shares probably includes foreign investors who change this allocation to domestic shares, selling a green place along the way.
. euro He proved one exception to trade with risk, rising in relation to Greenback last week, despite the fact that it is usually seen as less security than a dollar. Kriskey said that the growing optimism around the potential peace agreement in Ukraine and the promises of major government expenditure from countries such as Germany help to strengthen the euro.
“It is strange that this new (Trump) administration actually helps Europe to organize their home and that these currencies look more attractive,” Kriskey said. Betting on the euro for growth is one of the strategies used in Index Index Index Invesco DB (UDN).
What next
Good news for investors is that a sharp traffic on currency markets this week does not seem to be a direct threat to the economy or financial system. Amol Dhargalkar, a managing partner at Chatham Financial, said that companies may look more aggressive in securing the risk of currencies in the coming months, but corporations usually do this in a conservative way, which means that there should be no serious trade losses this week.
“Their main goal is mostly a view of the currency. The main goal is really to reduce risk,” said Dhargalkar.
Although there may be hedging funds, which were on the wrong side of the dollar movement, the currency market is also extremely fluid, deep and actively traded around the world, which means that it should be able to withstand 3% of movements in dollars without too much problem.
“This is in the extent that the market can digest,” said Ken Miller, portfolio manager Simplification of ETF (FOXY) currency strategy and head of company trade. Last week, he favorably compared the situation in which currency markets in financial crisis faced in 2008. “It was a completely different animal, because the banks were threatened and the contractors were threatened. I don't feel it here.”
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