The US dollar extended its rally while equities took a hit after President-elect Donald Trump announced plans to impose additional tariffs on China, Mexico, and Canada. The renewed focus on his “America First” trade policies has reignited concerns about global economic stability and trade relations.
Trump’s approach, reminiscent of his 2016-2020 presidency, follows a familiar playbook: an aggressive opening gambit aimed at setting the stage for negotiations. This strategy, which Trump has used effectively in the past, could add upward pressure on the greenback. Meanwhile, commodity-linked currencies like the Australian and New Zealand dollars are under pressure due to their strong economic ties to China.
Markets have been bracing for new tariffs, but the scale remains pivotal. Analysts suggest that tariffs below the 60% threshold could temper fears of a full-scale trade conflict. However, the initial shock has already rippled through financial markets, with risk-off sentiment weighing on equities and emerging market assets.
The earlier optimism surrounding Scott Bessent’s appointment as Treasury Secretary appears to have been overstated. While Bessent may seek to address fiscal imbalances, ultimate control of the US budget rests with the president. Trump’s fiscal policies, including deficit spending and potential tax reforms, are expected to inject volatility into global markets over the next four years.
As markets digest these developments, traders will closely monitor policy announcements and their broader implications for global trade and growth. For now, the dollar’s strength underscores the enduring influence of US economic and political dynamics on global financial markets.