Investors are turning bearish on the U.S. dollar as Trump's tariff plans create uncertainty in the market. The dollar index remained stable on Wednesday but has been retreating from its January peak. Traditionally a safe-haven asset, the dollar’s strength impacts exports, imports, and global trade.
Joseph Brusuelas, chief economist at RSM U.S., noted that traders are becoming bullish on major U.S. trading partners' currencies, particularly the euro. The euro, which had been long positioned against the dollar, has seen increased confidence in recent weeks. Analysts expect the euro to dip before rising to $1.12 or higher by year-end.
Market strategists predict an initial dollar rally following the tariffs but foresee long-term weakness due to stagflation risks and potential retaliatory tariffs. Athanasios Vamvakidis of Bank of America warned that an extended trade war could ultimately harm the U.S. more than its global counterparts.
The British pound could benefit, as Trump’s tariffs are primarily aimed at the EU, potentially sparing the UK. Analysts at Maybank raised their forecasts for sterling, projecting it to reach $1.31 in early 2026.
The New Zealand dollar is also expected to strengthen, with Maybank predicting it will hit $0.58 by the end of 2024. Analysts point to New Zealand’s economic recovery, fiscal discipline, and China’s potential stimulus measures as positive factors. Similarly, Australia’s stable financial position makes it an attractive investment destination, boosting its currency.
Despite uncertainties, investors are increasingly shifting focus away from the U.S. dollar, looking to alternative currencies for growth amid global trade tensions.