US Dollar Weakens 18% Due to Trade Policy Uncertainty

The vice president of the private investment bank Brown Brothers Harriman has stated that America’s trade policies are weakening the US dollar. In a recent interview, Elias Haddad explained that the greenback is falling by record levels this year due to a loss of confidence in the US trade, security, and perhaps even fiscal policy. This divergence between the dollar index and the rate differential reflects policy uncertainty.

Haddad attributed the ongoing drag on the US currency primarily to the protectionist trade policies under the Trump administration. He noted that higher tariffs, with the average effective tariff rate in the US increasing from 2% early this year to about 18% currently, pose a downside risk to growth and an upside risk to inflation. This situation is bearish for the US dollar.

Haddad also warned that the ongoing trade war threatens to accelerate the declining role of the US dollar as a primary reserve currency. He pointed out that the government’s efforts to narrow the trade deficit appear to be counterproductive, as they result in fewer US dollars flowing overseas and less dollars flowing back into US securities. For these reasons, the institution remains bearish on the US dollar.

A prominent private banking institution has attributed the recent decline in the US dollar to a loss of confidence in the nation's trade and fiscal policies. This assessment comes amidst growing concerns over the impact of recent tariff impositions and the passage of significant fiscal legislation. The institution's analysts highlighted that America's trade policies are increasingly perceived as weakening the US dollar's global standing.

The private banking giant's perspective aligns with broader market sentiments that have been influenced by the recent trade policies and fiscal measures. The institution's experts pointed out that the US dollar's traditional status as a safe-haven currency is being challenged by the perceived unpredictability in trade relations and the potential long-term effects of the new fiscal policies. This shift in confidence has led to a decline in the US dollar's value, as investors seek alternative currencies and assets that offer more stability and predictability.

The institution's analysis also touched on the implications of the recently passed fiscal legislation, which includes significant spending and tax cuts. While these measures are intended to stimulate economic growth, there are concerns that they may exacerbate the US's fiscal deficit and debt levels. This, in turn, could further erode confidence in the US dollar and lead to additional depreciation.

The private banking giant's assessment underscores the interconnected nature of trade and fiscal policies in shaping global currency markets. As the US continues to navigate its trade relations and fiscal policies, the institution advises investors to closely monitor developments and consider the potential impact on the US dollar and other financial markets. The institution's experts also emphasized the importance of diversification in investment portfolios to mitigate risks associated with currency fluctuations and geopolitical uncertainties.