The US dollar was steady in Asian trading on Wednesday, as markets cautiously watched the fallout from US President-elect Donald Trump’s comments about imposing tariffs on some countries. The stability comes as investors await key data on inflation in the US, which is expected to provide clues on the state of the US economy and the future of monetary policy. The dollar’s movement eased slightly, with the dollar index, which measures the currency’s performance against six major currencies, falling 0.07% to 106.83. Despite this slight decline, the greenback remains relatively strong, driven by expectations of a rate hike by the Federal Reserve if inflation pressures continue.
Binarily, the dollar was little changed against its Canadian counterpart, settling at C$1.4052. Despite this stability, the dollar is still far from its four-and-a-half-year high, hit on Tuesday at C$1.4178. The US dollar also rose to its highest level since July 30 against the Chinese yuan on Tuesday, reflecting its continued strength in Asian markets.
Against this backdrop, markets remain in a state of suspense, with concerns about the impact of Trump’s expected trade policies on the global economy. This uncertainty could increase volatility in financial markets, as investors adopt a “sell first, ask questions later” approach, which could boost demand for the dollar as a safe haven. The movement of the dollar remains dependent on upcoming economic data, especially those related to inflation, which will determine the direction of US monetary policy and the level of support that the US currency can receive in the coming period.
The impact of the rise of the US Dollar on global markets
The rise of the US dollar has wide-ranging effects on global markets, as the US currency is a key benchmark for international trade and finance. When the dollar rises, dollar-priced commodities, such as oil and gold, become more expensive for countries that use weaker currencies, often leading to lower demand.
This change negatively affects the economies of commodity-importing countries, increasing the cost of imports and putting pressure on their trade balance. In financial markets, a stronger dollar leads to increased investment flows into US assets, such as stocks and bonds, at the expense of emerging markets. Investors tend to move their money to the US to take advantage of the higher yields offered by the stronger currency, leading to a decline in the value of emerging market currencies and an increase in the cost of borrowing in foreign currencies. This puts additional pressure on companies and countries with dollar-denominated debt, as those debts become more expensive when repaid.
As for US multinationals, a stronger dollar could negatively affect their profits. Their sales in foreign markets become less valuable when converted into dollars, reducing the competitiveness of US products in global markets. Foreign companies exporting to the United States may benefit from the strength of the dollar, as their products become cheaper and more attractive to US The impact of a stronger dollar also extends to the policies of global central banks. Countries suffering from the decline of their currencies may have to raise interest rates to support their national currencies, slowing economic growth. The rise in the USD also puts pressure on commodity prices, as it leads to a decline in global demand, which negatively affects the countries producing these commodities.
The impact of the USD appreciation on investors
The rise of the US dollar significantly affects the decisions of investors in the financial markets. For international investors, a stronger dollar can lead to significant fluctuations in their investment portfolios, especially for those investing in emerging markets or in assets denominated in other currencies. As the USD rises, these assets become more expensive for foreign investors, which could reduce the attractiveness of investing in markets that rely on weak currencies. This may incentivize some investors to withdraw their money from these markets, causing local currencies to depreciate and increasing inflationary pressures.
On the other hand, investors in US stocks and bonds can benefit from the strength of the dollar. When the dollar rises, US bonds may be more attractive to international investors seeking to take advantage of the high yields of the strong currency. US companies that rely on domestic revenues may see stabilization or an increase in their profits thanks to the strength of the dollar, which enhances the attractiveness of US stocks to investors. On the other hand, investors in foreign markets may be negatively affected. For example, if companies rely on exports, a stronger dollar could increase the cost of their exports and cause a decline in their profits. These companies may become less competitive in international markets, which negatively affects their market value.
For investors with loans or debt denominated in foreign currencies, a stronger dollar can be an additional burden, as these debts become difficult to repay due to their high cost. The same applies to companies that rely on borrowing in foreign currencies, as interest on these debts may increase as a result of the appreciation of the dollar.
