The US dollar rose on Tuesday after US President-elect Donald Trump’s remarks, in which he confirmed his intention to impose tariffs on products from Mexico, Canada and China. The pledge has sparked alert among investors, who have begun to speculate about the impact of these policies on the global economy, especially in light of growing concern about the possibility of a trade war between the United States and other countries. Following these statements, the dollar witnessed a remarkable jump, rising by more than 2% against the Mexican peso, hitting its highest level in more than 4 and a half years against the Canadian dollar. The US currency also climbed to its highest level since July 30 against the Chinese yuan, which reflects the growing demand for it as a safe haven in light of the economic uncertainty left by these statements.
Meanwhile, many other currencies weakened against the US dollar, but their losses were pared in afternoon trading in Asia. This came at a time when the dollar had faced some challenges in the previous days, especially after the US Treasury bond market showed its welcome to Trump’s announcement of some economic appointments, which cast a shadow on the movement of the US currency.
It is important to note that the fluctuation in the value of the dollar at such times is due to sudden changes in trade policy, which raises many questions about the effects of these policies on the US and global economy. In light of these conditions, investors continue to follow economic and political developments closely, expecting the coming period to be full of challenges and transformations that may significantly affect financial markets.
Factors that contribute to USD price fluctuations
Many factors contribute to the fluctuations of the US dollar, as economic and political factors, both local and global, affect its price. One of the most prominent factors is the monetary policies the US Federal Reserve sets, as interest rate decisions and monetary policy directions directly impact the value of the USD. If the Federal Reserve decides to raise interest rates, it increases the attractiveness of the dollar to investors looking for higher returns, leading to its appreciation rate. On the contrary. If interest rates are cut, it could lead to a weaker dollar. Other factors that affect dollar fluctuations are US economic data such as economic growth rates, unemployment rates, and inflation indicators.
Geopolitical factors and international tensions also play an important role in dollar price fluctuations. Political or military tensions in certain regions of the world can lead to increased demand for the safe-haven dollar, thereby raising its value. On the other hand, if the United States experiences internal tensions or trade conflicts with other countries, it may negatively affect the dollar and lead to fluctuations in its value.
The currency market, including forex trading, is also an important factor in determining the price of the dollar. Speculators and investors react to economic and political news to determine their positions on the dollar, leading to large movements in the market that affect its value. The US currency is also affected by fluctuations in the prices of commodities such as oil and metals, as lower oil prices, for example, may lead to a decline in the USD , while higher oil prices enhance its value.
Impact of rise in the price of dollar on US market
The rise in the price of the US dollar can have multiple and complex effects on the US economy. When the dollar rises, it becomes stronger against other currencies, reducing the cost of import for US companies. This may be beneficial for US consumers who benefit from lower prices on imported goods such as cars and electronics, and thus could lead to an increase in the purchasing power of households. However, on the other hand, a stronger dollar could have a negative impact on US exports. As the dollar appreciates, US products become more expensive for foreign buyers, leading to a decline in demand for US goods in global markets. US export-dependent companies may face challenges in maintaining their competitiveness in international markets, which could affect their profits and employment in export-related sectors.
The rise in the USD negatively impacts big tech companies and some multinational companies that generate large revenues from outside the United States. As the USD strengthens, these foreign exchange revenues convert to lower values when converted into dollars, which can negatively affect the profits of these companies. For example, companies like Apple and Microsoft face the effects of currency fluctuations when the dollar is strong. Financially, a stronger dollar can have varying effects on bond markets and stock markets. For bond investments, a stronger dollar could mean an increase in the attractiveness of US bonds to foreign investors, as these investors expect higher returns on their USD investments. However, a stronger USD could reduce bond yields in some emerging markets, leading to volatility in global financial markets.
