How is Trump’s Foreign Policy Affecting the Dollar?

Since his election to office in 2016, Donald Trump has made a multitude of headlines as a result of various different events (and controversies). This has often sent ripples through the economy, reminding investors how much of an impact the president’s actions can have on the strength/value of the dollar and various other aspects of US economic operations.

Trump’s foreign policy in particular continues to have a significant effect, so here are some of the ways this is affecting the dollar and investor behaviour.

Volatility

Since Trump has earned himself a reputation for being a fairly unpredictable leader, investors will no doubt be finding it difficult to accurately predict how economic and foreign policy will progress at any given time. The recent introduction of new tariffs on steel and aluminium imports have incited fears of a trade war occurring, as other countries may respond by imposing their own tariffs on US goods.

China is viewed by the Trump Administration as a particular rival, and any trade war is sure to weaken the dollar against other currencies (tariffs have weakened the US currency in the past). This means that investors may be keen to sell off their dollars if the currency does show signs of weakening.

Protectionism

Much of Trump’s foreign policy has been centred on ‘putting America first’ through implementing protectionist policies (like the trade tariffs). In an increasingly interconnected world, however, these policies have the potential to hurt US trade, and ultimately decrease the overall demand for foreign products in America.

This means that the dollar may face an uphill struggle if trade is damaged by the US government’s outlook. It will, of course, take time before the full effects of protectionist policies become clear, but global markets are incredibly sensitive, and forex traders will be closely monitoring how the dollar measures up against other currencies in the coming months.

Syria

There have been huge escalations in the conflict in Syria recently, with the US becoming increasingly involved. This has caused the dollar to sink against the safe haven yen, and with the US continually clashing with Russia over this prominent issue, it seems as though foreign policy around this conflict could affect the dollar for the foreseeable future.

Whilst this focus on Syria may have diffused some trade tension with China, it has certainly put the spotlight on the US and its foreign policy, which may make markets/the dollar even more sensitive to future US policies.

The Future

There is no doubting that the dollar currently faces a period of uncertainty whilst global situations play out. The US currency has been in steady decline against the euro over the last year, and it has showed no signs of strengthening any time soon.

Much of the dollar’s fortune may rest on the foreign policy decisions which are made from now on, and there will be much debate as to how the US should continue.

Ultimately, though, it seems as though US foreign policy has weakened the dollar overall, and so many investors will be cautious with regards to investing in the US currency as well as US markets. It remains to be seen just how longstanding the effects of foreign policy will be on the dollar, but tensions are undeniably high at this time, and will likely remain so for the foreseeable future.

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