Trump effect on the dollar: from January it has lost 5% against the euro. Because it happens and what is expected now

At the beginning of January 2025 the strength of the dollar seemed unstoppable. After the election of Donald Trump to the White House, the green ticket had quickly earned positions Against all the main currencies and seemed destined to quickly reach equality against euro and perhaps even to push the common European uniform below 1, after on 10 January the dollar had touched a maximum of 1.02 against euros. But then something didn’t work And the dollar began to weaken.

Peter Kinsella, head of the evaluation strategies of Union Bancaire Privée, takes stock of the latest developments in the currency market. « From the settlement of Donald Trump, The trust of US consumers has worsened, reflecting the major levels of uncertainty linked to duties. Long -term US interest rates decreased And, consequently, the advantage at the Carry level (coupon performance) of the US dollar compared to most of the currencies of the G10 countries and emerging markets has reduced « , writes Kinsella in an analysis just published.

The failure of the « Trump Trade »

From January 22, the US dollar index dropped by about 5%. The weakness of the dollar is generalized, with the currency that loses ground both against the currencies of the G10 countries and those of the emerging markets. Currencies such as the Swedish crown (Sek), the Norwegian crown (Nok) and the Yen (Jpy) have recorded the best performances compared to the dollar. The underestimated currencies, such as the Swedish crown (Sek), the Norwegian crown (NOK) and the Yen (Jpy) are benefited.
This prices on prices does not correspond to the expectations of the investors according to which the dollar would have benefited from the so -called « Trump Trade », A combination of deregulation of the US economy, high duties on higher imports and interest rates.

Progaganda against reality

According to current opinion, the duties should have led to an appreciation of the US dollar due to the expectations of reducing imports and a consequent improvement of the United States commercial balance. However, this did not happen. This reflects theunpredictability ads on duties and lack of certainty about the final position of the United States on this issue. Trump’s announcements and the subsequent suspension of tariff measures on Canada and Mexico are an excellent example. Consequentially, The euro/dollar gearbox has not moved almost when Trump announced potential duties On European goods: when it comes to commercial policy, it becomes complicated for investors to understand whether to trust Trump’s words or not.
Surprisingly, there are few studies on the effects of the duties on currencies. However, According to scholars, the initial impact is an appreciation of the currency of the country that imposes duties due to changes in the commercial scale. The subsequent economic effects then tend to reverse this trend.

The drop in long -term rates

There is also a question of scale and size. The United States imposed duties at China starting from 2018, when the Central Bank of Beijing wanted to slightly weaken the Chinese Renminbi (CNY). In the current scenario the United States imposed duties at China, Canada and Mexico at the same time, as well as threatening to apply them to the EU. And instead of witnessing an appreciation of the dollar, we witnessed its weakening.
From the settlement, the trust of US consumers has worsened, reflecting the greatest levels of uncertainty linked to duties. Long -term US interest rates decreased and, consequently, the advantage of the US dollar compared to most of the currencies of the G10 countries and emerging markets has reduced.

Overvalued dollar

« The US dollar had been exchanging the maximums for decades before Trump’s settlement, » writes Kinsella. His clear overvaluation is one of the main factors behind the US commercial deficit and the US administration will have welcomed the weakening of the dollar. «We believe that the threshold for further weakening of the dollar is not particularly high. The announcement of Germany’s tax expenditure marks a turning point and will lead to a greater growth dynamics in the largest European economyat the same time when the United States will experience slower growth and a modest tax contraction. Basically, a stronger euro will do more to reduce the commercial deficit of the United States than the duties will never make. «