Effects of Donald Trump on the US dollar
It is very clear that Donald Trump is not loved by all. He has strong views and action plans to “Make America Great Again”. These dramatic changes to the US economy have caused major effects on the US dollar. The uncertainty of America’s future economy brings even more concern to the foreign exchange market. This causes decrease in consumer and business confidence and hikes in foreign exchange market. Overall, drastically changing the dollar position in the market.
When Donald Trump got elected, the stock markets went into turmoil over night. He tweeted one statement to his 25m followers, referring to the defence contractor’s stealth fighter jet. Donald Trump attack on Lockheed Martin, caused Lockheed’s share price plummeted 5%, wiping out $3.7bn of market value. When someone has that much power to cause the stock market to suddenly change, what could they possibly do to the US dollar?
Why is there a negative view upon Donald Trump?
Donald Trump has many controversial views that not everyone agrees with which is the main reason why people have such negative views upon him. He has put some of his promises over the election campaign into practice. One of the most controversial was his ban on all muslim citizens from the majority-Muslim countries Iran, Iraq, Syria, Sudan, Somalia, Libya and Yemen. This could affect foreign investment and discourage those with a different point of view to invest in america.
A lot of high profile celebrities have campaigned openly against the president, about these issue. For example, JK Rowling tweeted that he’s worse than Voldemort.
How horrible. Voldemort was nowhere near as bad. https://t.co/hFO0XmOpPH
— J.K. Rowling (@jk_rowling) December 8, 2015
Other countries have also taken a dislike to Trump, the British public have demanded to suspend his state visit, because of his racist views and actions. The combinations o f the two issues has lead to a possible problems for the future relationships of america and Britain. Although it is not only Britain that America could lose their relationship with, Donald trump has made it very clear that he wants to build a wall between America and Mexico.
Thus the demand for the country exports could fall over time and at the same time possible tariffs could be imposed to imports with countries that do not want to trade with america. This could lead to the dollar to depreciate in the long run, as less demand for foreign imports and a fall in exports occurs.
What is the current position of the Dollar?
The dollar is currently in a stable position. The US dollar has been steadily increasing over time. By the end of 2016, DP was at its highest of 3.5%, but by the end of the January 2017 this dropped to 2.2%. This could be cause of Donald trump coming into power. Also the US Dollar decreased 0.78% on Friday 3rd March 2017. The first few months of Trump coming into power have caused major effects upon the US economy. The uncertainty in consumer and business confidence, could lead to a weak exchange rate, causing the dollar to decrease over the next few months.
How can America fix a depreciation or appreciation in the foreign exchange market?
Lets suggest that Britain does not want to trade with america and they impose a tariff on their exports. This could discourage British consumers to import american goods. The demand for American exports would fall leading to a weaker dollar. A depreciation in dollar can cause a fall in the value relative to another country. This can cause America GDP to decrease over time, slowing its growth overall.
Alternatively, there could be an internal effect of American citizens losing confidence in their president and starting to save for the future. They could be expecting future exchange rates to increase causing demand to fall. The quantity of dollar assets decreases and the exchange rate fall. Thus causing a depreciation on the Dollar.
What does the future look like for the Dollar?
Currently the dollar is in a strong positive position. However, Donald Trump is in a strong position with his travel ban reinstated, he has defies all odds. The combination of drastic actions and the position of the dollar could possibly not be maintained. America have had a massive change by electing a business man to be their president. There are bound to be some bumps along the four year journey and one of them could be the effect on the dollar.
Would Donald Trump make such drastic changes if there is clear evidence of it negatively affecting the Dollar in the foreign exchange market?