Expert: Could the Trump trade tariff have an AED impact?
The US Dollar received some support when new Federal Reserve Chair Jerome Powell spoke optimistically about the Trump US economy during his maiden testimony to congress.
But could this good be undone by Trump’s unexpected announcement on 1 March that he plans to raise trade tariffs?
FXTM’s Global Head of Currency Strategy and Market Research, Jameel Ahmad, explores these recent developments in more detail.
Tariffs and Impacts
It’s been another eventful start to the trading month for the US Dollar.
Just when it looked like the Greenback was about to turn the corner after US Federal Reserve’s Jerome Powell left the door open for investors to price in four potential interest rate increases from the United States in 2018, President Trump dropped a bombshell in the late hours of March 1.
The Commander-in-Chief shocked the world by vowing to impose tariffs on imports of steel and aluminium, resuming past fears of a global trade war in the process.
The USD quickly nosedived from its highest level since the middle of January and stock markets across the globe took a tumble.
The lack of risk appetite from investors didn’t stop with stocks as the price of Gold rallied, rebounding by $20, and the Japanese Yen touched its highest level against the USD since November 2016.
It is a bit too early to state that this is the beginning of a trade war, but the market reaction on Friday 2 suggests that this news has dealt a blow to market sentiment.
President Trump has said that the United States would set tariffs of 25% on steel imports and 10% on aluminium.
There are concerns about how others might retaliate to this development, with most of the attention on China.
President Trump had, of course, been very outspoken about Chinese trade in the past, but it needs to be taken into account that this isn’t necessarily a move likely to impact just China.
It is something that will impact all exporters of steel and aluminium to the United States.
In terms of the currency market reaction, what we are currently seeing is an inconsistent performance for the US Dollar, meaning that the AED is also going to see some mixed results.
The Dollar has weakened against the Euro, Swiss Franc and Japanese Yen at time of writing.
The Dollar has, however, rebounded against a number of different emerging market currencies, suggesting that investors are preparing for a possible re-emergence of Trump’s protectionist rhetoric towards the developing markets.
The UAE Dirham is probably going to notice that it increases in value against emerging market currencies over the near-term.
This is due to anxiety that President Trump will ramp up his America first agenda, which is seen as a large threat to emerging market growth.
The local stock markets in the region might notice selling pressure if the negative stock sentiment from Asia, Europe and the United States at the end of last week carries through into the new trading week.