The statements of Donald Trump, who suggested possible trade negotiations with China rather than the imposition of customs duties on the world’s second largest economy, caused the dollar to fall sharply on Friday while gold, a safe haven, benefited from this climate of uncertainty. “We have a very big power over China, it’s the tariffs, and they don’t want it, and I would prefer not to have to use it”Mr. Trump said on Fox News Thursday evening. “The new president appeared to significantly soften his approach to the world’s second-largest economy (which) led to a sharp decline in the dollar”noted Monex USA analysts in a note.
This unexpected announcement penalizes the greenback against other currencies: in the middle of the day, it fell by more than 1% against the pound and the euro. Around 7:30 p.m. GMT, it fell 1.04% against the pound, to $1.2482, and lost 0.77% against the euro, to $1.0495. The Dollar Index, which compares the American currency to a basket of other major currencies, fell 0.93% to 107.457 points. After taking office on Monday, Mr. Trump said that 10% tariffs on all Chinese imports could take effect on February 1. During the electoral campaign, he even mentioned up to 60% taxes. The prospect of this protectionist trade policy, considered inflationary, initially boosted the dollar.
No decree
For Brad Bechtel, of Jefferies, the market is now in the process of repositioning itself and “starting to ask questions about the exact rate of customs duties” which could be implemented by the Trump administration. In addition to China, Donald Trump announced that he intended to impose customs duties of 25% on products from Canada and Mexico from February 1. No decree has yet been signed to this effect.
“It is likely that the noise around tariffs will intensify in the days and weeks to come”estimated Brown Brothers Harriman analysts in a note. According to them, the backdrop “remains unchanged (…) characterized by strong growth, high inflation and a more cautious American Central Bank (Fed)”which favors a strong dollar. Gold, a popular safe haven in uncertain times, took the opportunity to rise to $2,786.01 on Friday, around $4 from its historic record at the end of last October. Around 7:30 p.m. GMT, its price remained high, at $2,772.40 per ounce.
