The US dollar (DX=F, DX-Y.NYB) has seen volatility since Donald Trump’s inauguration, retreating from its highest levels in nearly two years as the president failed to enact broad tariffs on his first day in office.
The move surprised investors because the emergency order would have allowed for immediate tariff increases unlike the alternative investigations process, which would likely take longer to complete.
However, the dollar recovered about half of its losses after the president later said that tariffs on Mexico and Canada could be imposed by February 1. I issued a memo Directing federal agencies to evaluate U.S. trade policy, which could ultimately lead to sweeping tariffs across a variety of trading partners.
Mohamed El-Erian, chief economic advisor at Allianz, told the Yahoo Finance morning show that the dollar’s gains and losses indicate a new normal for the markets.
“The message is that this is not a one-day event,” he said, noting that there are upside and downside risks. “This is something that will stay with us.”
To that point, Trump’s erratic rhetoric “reminds us that vigilance is warranted because the course of U.S. policy can evolve rapidly,” Morgan Stanley strategist Michael Zizas and economist Michael Gapen said in a note Tuesday. The team maintained its stance that any policy adjustments would likely not be felt until the back half of the year.
The dollar’s recent price action has been largely driven by two major catalysts: Trump’s election and subsequent Republican sweep, coupled with a recalibration of future Fed easing in the face of strong economic data.
After the US Dollar Index (DX-Y.NYB), which measures the value of the dollar against a basket of six foreign currencies (euro, Japanese yen, sterling, Canadian dollar, Swedish krona, and Swiss franc), hit its lowest level in September. ), rose by approximately 10%. Since the election, it has risen by about 5%.
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