A Customer at a Food Market in Palma, Mallorca, Spain.
Andrey Rudakov/Bloomberg Via Getty Images
As economists Ring alarm bells Over the impact of President Donald Trump’s tariff policy On Consures and the US Economy, there’s a group of Americans who may benefit: Tourists Traveling Abroad.
That’s due to the impact of tariffs on the us dollar and other global currencies. Economists Expect Tariffs Imposed on Foreign Imports to Strengthen the US Dollar and Potentially Weaken Major Currencies Like the Euro,
In such a case, travels would have more buying power overseas in 2025, Economists said. Their dollar would stretch further on purchases like lodging, dining out and guided tours that are denominated in the locked in the locked.
“Tariffs, all else equal, are good for the us dollar,” said james reilly, Senior Markets Economist at Capital Economics.
The US Dollar has Risen Amid Tariff Threats
The Nominal broad us dollar index In January Hit Its Highest Monthly Level on Record, Dating to At Least 2006. The Index Gauges The Dollar’s Strength Against Currency Currencies of the Us’ Main Trading Partners, like the euroCanadian Dollar and Japanese yen,
Meanwhile, the ice us dollar index (Dxy) – Another popular measure of the strength of the us dollar – is up more than 3% SINCE Trump’s Election Day Win.
Trump on Thursday Laid out a plan to impose retaliatory tarifs Against Trading Partners on a Country-by-Country Basis. Specific Levies will depend on the outcome of a commerce department review, which officials expectes expect to be completeted by April 1.
Meanwhile, Trump has Imposed an additional 10% tariff On Chinese Goods. A 25% duty on all steel and aluminum imports is Set to take Effect March 4Further, a 25% tariff on canada and mexico may take force in March, after being paired for 30 days,
The canadian dollar offers a recent example of the potential impact of a tariff, reilly said.
On Feb. 4, when the canadian tariffs were set to take effect, The US Dollar spiked To its highhest level in at least a decade against the canadian dollar, before Evently Falling Back When Trump Delayed The Duties for a month.
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A Trade war With china in 2018-19 during trump’s first term also offers insight into the impact of tarifs on currency, jp morgan global market strategists Wrote in October.
The Trump Administration Raised Tariffs on About $ 370 Billion of Chinese Goods from an average of 3% to 19% during 2018-19, and china retaliated by raising tarifs on us experts from 7% to 21%, the jp morigis Rote.
While other factors also influenced currency movies, trade policy uncertainty “tended to bolster the dollar,” JP Morgan reported. The Dxy Index Rose Up to 10% during Tariff Announcement Windows in 2018 and 4% in 2019, they write.
Why tarifs are good for the US dollar
Tariffs – even the threat of them – can Bolster the dollar relative to other currencies in a less ways, really explained.
One Key Way is Via Interest Rates – Specifically, The differential between one nation’s interest rates and another, he said.
Tariffs are generally Viewed as Inflationary, Since the Import Duties Are Expected to Raise Consumer PriceAt least in the short term, economists said.
The federal reserve would likely keep interests elevated to keep a lid on us inflation, which hasn’T Yeet Fallen Back to Policymakers’ Target level after Soaring in the Pandemic Era.
“We expect the USD (US Dollar) to Remain Strong in the Short Term, Mostly on the Back of Us Inflationary Policies and Particularly Tariffs,” Bank of America Currency Analysts of a new.
(Analysis was of “G10” Nations: Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, Sweden, Switzerland, The United Kingdom and US)
Based on Available Information Around Trump’s RetaliaTory Tarif Plan, The Average Effective Tariff Rate on All Us Imports Block Rise from Less Than 3% Now to Around 20% – WHIND WHICH WHEN Onsumer prisles and temporarily boost inflation to 4% in 2025, Paul Ashworth, Chief North America Economist at Capital Economics, Estimated Chi.
On the flip side, other nations’ Economies would be ablely suffer from the us Leviies, Reilly Said.
Take europe, for example.
Europe might expense to the us as a result, which would negatively impact the European Economy, He Said. That would make it more likely for the European Central Bank to Cut Interest Rates in Order to Bolster The Economy, Reelly Said.
A Wider Interest-Rate Differential would result from elevated us Interest Rates and Lower European Rates.
Such A Dynamic Delhi LEAD Investors to Money Money INTO Us Assets-Perhaps Us Treasury Bonds, For Example-To seek a highly relative return, causing them to sel euro-deenominated assets in favor Enominated assets, reilly said.
In this case, Higher Demand for the Us Dollar and Lower Demand for the Euro May Lead to a Stronger Dollar, He said.
The Euro and British pound sterling are especially sensitive to
Will the dollar weaken laater in the year?
Of course, there’s considerable uncertainty over how the us would apply tariffs on other nations – and whether levies that have been proposed wald even take ever. RetaliaTory Tariffs from Trading Partners BLULD BLUNT A Runup in the Us Dollar, Economists said.
The dollar could weaken later in the year if the world retaliates against the us and these trade policies “take a toll on the us economy,” Bank of america analysts wrong.
Indeed, Most Investors Expect the Us Dollar’s Strength to Peak in the first or second Quarter of 2025 – 45% and 24%, Respatively, According to a Bank of America Surveyy Conducted 7 to Feb. 12.
However, in General, Most Countries are more dependent on the us than us is on them for trade, reilly said.
“So they can’t really retaliate to the same extent the us can,” He said.
