Dollar's Decline May Slow as Trump Pauses Tariffs, Says Forecaster
1min read 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 start to a year in at least two decades, the dollar's decline may slow down in the current quarter. Marinov, the head of G-10 foreign exchange strategy at a major bank, noted that the rotation of funds out of U.S. assets due to tariffs remains the primary downside risk for the year.
Marinov believes that President Trump's decision to pause certain tariffs could help alleviate market concerns about U.S. economic growth, slow capital outflows from the U.S. market, and thereby boost the dollar. He also suggested that other economies might suffer more from the ongoing trade friction.
Marinov expects that export-driven economies like the Eurozone and Japan will fare worse in the trade war, which could reduce the attractiveness of the euro and yen relative to the dollar. He also believes that concerns about the diversification and de-dollarization of foreign exchange reserves have been overstated.
Despite the Bloomberg Dollar Index hovering near a six-month low and falling 7% since the start of the year, its worst start since the index was launched in 2005, Marinov maintains his prediction that the dollar will be stronger by mid-year than it is currently.
Marinov anticipates that the Japanese yen will depreciate from its current level of around 141 yen per dollar to 148 yen, while the euro will fall from around 1.15 to 1.08, near its highest level since 2021. However, he cautioned that Trump's threat to fire Federal Reserve Chairman Jerome Powell could pose a downside risk to his dollar forecast and may force him to adjust other predictions.
Marinov noted that as the U.S. market declines, the aura of American exceptionalism is fading, and investors from the European Union and Japan, who were previously bullish on the dollar, are now selling U.S. risk assets and buying their own currencies. He cited increased defense spending in Europe and expectations of rate hikes by Japanese policymakers as supportive factors for the euro and yen.
While Marinov acknowledged that the market may have acted too quickly and prematurely in selling the dollar, he also warned of existing risks, including the potential for new tariff measures to exacerbate inflation.
