US assets are facing a growing threat of massive selling by international investors. These investors are forced to divest due to growing concerns about the stability of the US dollar. George Saravelos, head of foreign exchange research at Deutsche Bank, warned of growing concerns about a collapse in confidence in the dollar. He believes the current situation could lead to a broader crisis of confidence in the US economy.
In his remarks, Saravelos noted that the depreciation of the dollar along with the decline in US stocks represents an unprecedented shift. He stated that it is unusual for the dollar and stocks to decline simultaneously, posing significant risks to foreign investments. He warned that this situation could lead to increased losses in European markets on US assets.
Traditionally, European investors do not need to hedge against currency risk when investing in US assets, as the dollar’s rise is expected to offset losses in stocks. However, with the simultaneous decline in the dollar and stocks, the situation has become more complex. This could exacerbate losses for foreign investors as selling accelerates in global markets. Meanwhile, the current situation threatens to unravel the investments that investors have pumped into US assets over the past decade.
The Negative Effects of US Tariffs on the Dollar
The significant decline in the value of the dollar was not entirely surprising, as tariffs imposed on US imports have exacerbated their negative impact on financial markets. US President Donald Trump’s announcement of tariffs on imported products surprised markets and led to a decline in US stocks. This policy also led to a significant decline in the value of the US dollar.
Trump announced a 10% tariff increase on all US imports, in addition to imposing higher tariffs on some of the United States’ largest trading partners.
Retaliatory measures could further complicate the situation.
The euro’s rise was one of the most prominent reactions, recording a 1.3% jump against the US dollar, reflecting growing concerns about the repercussions of the tariffs. Asian currencies rose at a slower pace, with the Chinese yuan falling to its lowest level on the domestic market. Conversely, several other emerging market currencies declined, reflecting global anxiety over the impact of US tariffs.
One major concern looming is the possibility of retaliation by US trading partners. European countries, for example, may take countermeasures if the trade war with Washington continues. Ursula von der Leyen, President of the European Union, warned that US tariffs would severely impact the global economy, stressing the EU’s readiness to take countermeasures if negotiations with the US fail.
The impact of this trade war is not limited to the dollar alone; it also includes the significant decline in global markets. Weak economic data from the US has contributed to fears of a recession and led to a significant decline in the dollar. The dollar index has fallen 4% this year, reaching its lowest level in several months, reflecting growing concerns about the US economic situation. US Economic Challenges After Tariffs
The direct effects of the tariffs on the US economy are beginning to become clear. US stock index futures saw a significant decline, especially after the tariffs were announced, adding further pressure on the dollar. Despite these declines, some believe the situation may not reach a full-blown recession, especially if the Trump administration shows a willingness to de-escalate trade negotiations.
However, despite these expectations, the markets continued to escalate, and the Standard & Poor’s 500 Index fell 3.6% this year before the tariffs announced. Meanwhile, shares of major technology companies declined, reflecting the pressures these companies are facing due to the escalating trade conflict.
The United States is the biggest loser from the trade war.
Amid the ongoing escalation in the trade war launched by the administration of US President Donald Trump, the United States is emerging as an unexpected beneficiary of the economic challenges posed by these policies. Although the stated goal of the tariffs was to protect the US economy and boost domestic industries, the reality is that the US may be the biggest loser from these measures.
Immediate Impacts on US Markets
Following Trump’s announcement of tariffs on foreign imports, particularly from China and the European Union, US markets experienced severe turmoil. US stock index futures fell 4% after the announcement, demonstrating the immediate impact of these measures on local markets. Furthermore, many major US companies that relied on international trade declined, raising concerns among investors.
US markets, already in recession before the tariffs, faced additional pressure as fears of rising inflation grew. These policies will weaken purchasing power in the United States, as tariffs will raise the prices of imported goods, negatively impacting American citizens. Impact on the US Dollar
One important aspect of the trade war is its significant impact on the US dollar. Once viewed as a global reserve currency and a safe haven, the dollar has begun to show significant weakness against many major currencies. Following the imposition of tariffs, the dollar’s overall index fell significantly, declining significantly against the euro and the Japanese yen.
The negative impact on the dollar means that the cost of imports for the United States will rise, putting further pressure on the US economy. At the same time, this increases the cost of living for American citizens and contradicts the goals of the trade war, which aim to improve the country’s economic situation.
