The dollar is faltering due to protectionism, budgetary care and geopolitical risks, according to asset manager We-Trust Capital Management. The US dollar is moving in a tense balance between geopolitical risks, increasing protectionist measures and fundamental concerns about the American economy, says Lars LuitingHead of Trading at We-Trust.
President Trump has further performed the tensions with a series of new rates. From 1 August a levy of 25 percent applies to all goods from Japan and South Korea, part of his “Reciprocal Tariffs” policy. In addition, new rates of 35 percent threaten on Canadian products and general taxes up to 20 percent on other trading partners.
Investors initially responded with risk period, which led to a flight to the dollar as a safe haven. This gave the currency temporary support. At the same time, concern about the consequences of this policy on inflation and worldwide trade flows is growing. Trump has made it clear that countries that take countermeasures can expect further rate increases.
“In addition, the US dollar is put under pressure in the medium term by structural factors. Increasing tax expenditure, large shortages and worries about the sustainability of the American budget affect the confidence in the greenback,” said Luiting. The earlier decrease in the dollar in recent months already reflected this sentiment, especially under institutional investors who reduce their exposure to dollar activa.
“The combination of protectionism, budgetary uncertainty and geopolitical confrontation makes the prospects for the dollar complex,” writes Luiting in a statement. “In the short term, the currency can find support in periods of increased market zero rest, but structurally the risk that the dollar’s appeal as a world reservation will decrease.”