The US dollar (DX=F, DX-Y.NYB) has been volatile since Donald Trump’s inauguration, retreating from near two-year highs as the president failed to impose broad tariffs on his first day in office to feed.
The move surprised investors because an emergency order would have allowed immediate rate increases, unlike the alternative examination process, which is likely to take longer.
Still, the dollar has recovered about half of its losses after the president later said tariffs could be imposed on Mexico and Canada on February 1. He also issued a memorandum directing federal agencies to evaluate U.S. trade policy, which could ultimately lead to blanket tariffs across the U.S. various trading partners.
Mohamed El-Erian, chief economic adviser at Allianz, told Yahoo Finance’s Morning Brief program that the dollar’s gains and losses represent a new normal for markets.
“The message is that this is not a one-day event,” he said, noting that there are both upside and downside risks. “This is something that will stay with us.”
To that point, Morgan Stanley strategist Michael Zezas and economist Michael Gapen said in a note Tuesday that Trump’s back-and-forth rhetoric “reminds us that vigilance is needed as the U.S. policy path can evolve quickly.” The team maintained its position that any policy adjustments would likely only be felt in the second half of the year.
The dollar’s recent price action has been largely driven by two major catalysts: Trump’s election and subsequent Republican victory, along with the Fed’s recalibration of future easing in light of strong economic data.
After reaching a low in September, the US Dollar Index (DX-Y.NYB), which measures the value of the dollar against a basket of six foreign currencies (the euro, Japanese yen, British pound, Canadian dollar , Swedish krona and Swiss franc)), has risen almost 10%. It has increased by about 5% since the election.
