The U.S. dollar surged against most major currencies on the back of President Donald Trump’s announcement that he would impose new tariffs on steel and aluminum imports, sparking a fresh wave of demand for the greenback. Currencies from countries like Norway, Canada, and Australia saw significant declines against the dollar as investors adjusted to the news of a blanket 25% tariff on imports from all nations, set to be announced on Monday.
Billy Leung, investment strategist at Global X ETFs, noted, “The risk remains that tariffs could escalate gradually over time. This would likely lead to persistent inflation pressures, prompting the Federal Reserve to adopt a cautious stance on rate cuts, while reinforcing factors that support a stronger dollar.”
The U.S. dollar index gained 0.3%, building on similar gains from Friday when Trump hinted at the potential for reciprocal tariffs on trading partners, although the specifics remained unclear. Since its September lows, the dollar has surged nearly 7%, reflecting investor concerns about the inflationary impact of the tariffs and their potential effect on the Fed’s decision-making regarding interest rates.
Despite the ongoing uncertainty surrounding Trump’s tariff threats, Wall Street banks are forecasting further strength for the dollar. Goldman Sachs Group Inc. predicts that the greenback could reach parity with the euro, while JPMorgan Chase & Co. expects the dollar to rise to around 1.50 Canadian dollars, a level not seen in over a generation.
Data from the Commodity Futures Trading Commission (CFTC) shows that while speculative traders scaled back on their bullish dollar positions during the week ending Tuesday, the derivatives market remains heavily skewed in favor of the U.S. currency. Approximately $31.2 billion worth of wagers were placed on a stronger dollar. Meanwhile, leveraged funds increased their short positions against the euro and Canadian dollar during the same period.
Rodrigo Catril, strategist at National Australia Bank Ltd., commented, “The Trump administration is clearly using tariffs as both a negotiating tool and a strategy for restructuring. With the market in a state of flux, the dollar is responding accordingly to this period of heightened uncertainty.”
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