Dollar's Decline May Ease as Trump Pauses Tariffs, Says Forecaster

Valentin Marinov, a top-performing forecaster, has suggested that despite the global trade war shaking the dollar's status as a safe-haven asset and leading to its worst annual start in at least two decades, the dollar's decline may ease this quarter. Marinov noted that the rotation of funds out of U.S. assets due to tariffs remains a significant downside risk for the year. However, he believes that President Trump's decision to pause certain tariffs could alleviate market concerns about U.S. economic growth, slow capital outflows from the U.S. market, and boost the dollar.

Marinov also pointed out that while the trade friction continues, other economies might suffer more significant losses. He expects that export-driven economies will fare worse than the U.S. in the trade war, which could reduce the attractiveness of their currencies relative to the dollar. Additionally, he believes that concerns about the diversification and de-dollarization of foreign exchange reserves have been overstated.

Despite the dollar's current weakness, Marinov maintains his prediction that the dollar will be stronger by mid-year than its current level. He forecasts that the yen-to-dollar exchange rate will rise from around 142 to 148, while the euro-to-dollar rate will fall from around 1.14 to 1.08. However, he cautioned that Trump's threat to fire Federal Reserve Chairman Jerome Powell could pose a downside risk to his dollar predictions and might force him to adjust other forecasts.

Marinov also noted that the market has been too quick and premature in selling the dollar, but he warned that risks remain, including the potential for new tariff measures to exacerbate inflation. As the U.S. market declines, the aura of American exceptionalism has faded, and investors who previously bet on the dollar are now selling U.S. risk assets and buying their own currencies. Marinov attributes this to increased defense spending in Europe and expectations of rate hikes by Japanese policymakers, which support the euro and yen.