The dollar pays the price of the new Trump world … low green currency and the rise of the euro

US President Donald Trump has launched an unprecedented challenge to the world’s geopolitical regime for decades, indifferent to the repercussions of this on the largest economy in the world, and its performance in the domination of the dollar, which may be a potential victim.

Within a few weeks, the sharp increase in the customs duties imposed by Trump, and uncertainty about trade has sparked fears of slowing American growth. Meanwhile, major foreign policy transformations have increased optimism about the European economy, which prompted the dollar remarkably declining against the euro, pushing shares in Europe to record levels, and stimulating the largest leap in German bond revenues since the fall of the Berlin Wall in November 1989.

The dollar index has decreased for seven weeks from the past nine weeks, according to a report by the Wall Street Journal, to almost erase the gains made since the US elections on the fifth of last November. If this financial turmoil continues, it may have repercussions on everything, from global investment flows to the direction of tourism across the Atlantic.

For generations, American political leaders have generally adopted the priority of the dollar in the global financial system, in part that it led to a decrease in the cost of government borrowing. The country’s spending on defense contributed to strengthening this situation by increasing the budget deficit, which is largely produced by foreign investors, who possess about a third of the American debt. Now, Trump and some of his advisers want to spend less resources to protect their allies, and aspire to a weaker currency to enhance local manufacturing, by making goods cheaper for foreign buyers.

“The danger to the markets is the short -term turmoil, but I believe that our republic will be in a better position if we spend a few thousand additional dollars on a car in exchange for a workforce capable of production and bear the costs of what it produces,” said Lloyd Blancheved, former CEO of Global Investment Bank. However, many in Wall Street fear the negative effects of such changes. The weakness of the dollar would increase the cost of imports, which leads to an increase in inflation and makes it difficult for the federal reserve to reduce interest rates. Outside US assets, which weaken the dollar, may lead to low stock prices and high US borrowing costs.

Many do not believe that a significant decrease in the value of the dollar is imminent, and this is partly due to the fact that American interest rates are higher than almost anywhere in the developed world, which promises the continuation of foreign investment. “What happened during the past few weeks can make a fundamental change.”.

The recent decline in the value of the dollar was surprised, while many have always believed that Trump would judge a traditional Republic, focusing on tax reduction and cancellation of organizational regulations. The forecasts of the fastest economic growth initially helped the shares and dollars rise after Trump’s victory in the elections. But investors are now reviewing these assumptions. Trump has already imposed large customs duties on the goods received from America’s largest commercial partners, and threatened to impose more, prompting Canada and China to take immediate retaliatory measures. His administration moved to lay off thousands of federal employees, and talking about tax cuts is largely faded.

All of this led to a decrease in growth forecasts in the United States, where investors felt very anxious about the uncertainty surrounding customs duties, which vow to raise consumer prices. Meanwhile, hopes rose in Europe. This is partly attributed to a series of best data, but it also stems from Europe’s move to enhance military spending after the public clash between Trump and Ukraine President Voludmir Zellinski in the White House in late February.

Fearing that they are unable to rely on the United States to defend their interests, German leaders announced a few days later that they would break the barrier of decades from history by liberating borrowing to finance the strengthening of their army. European Union officials have also identified a plan to collect hundreds of billions of euros for defense, and reduce financial rules at the national level.

As for investors, the main feature of these ads was that they promised sustainable investments. The euro has a temporary rise against the dollar at other times in recent decades. But this time, this movement may be sustainable, because what Europe promises “not just one time, like the economic stimulus package to meet the repercussions of Corona,” as Sono Vargiz stated, the global market strategy in the Carson Group, a financial consulting company.

Stephen Miran, the newly appointed president of the Economic House of Economists at the White House, presented several unconventional ideas in a research paper published last year on how Trump weakened the dollar. These ideas included the imposition of use fees on the buyers of foreign US treasury bonds. And some in Wall Street take these ideas seriously. Eric Stein, head of investment at the “Voye” for investment management, said that one of the reasons for the weakness of the dollar recently is the knowledge of investors with what the administration aims. However, others question that Trump’s policies will be applied as desired.

“Trump’s commitment to tax discounts is likely that the federal budget deficit will remain great. It is the need for more borrowing to finance the deficit to keep US treasury bonds high, and to upset the dollar, while global investors seek high -yielding assets,” said Brad Setiser, a prominent colleague of the Council of Foreign Relations. In another scenario, the dollar may continue, and Trump may achieve its goal by reducing the gap between American exports and imports, but only because the American economy is suffering, as he added.

Foreign investors may tend to transfer their money from American assets. But alternatives, including Europe, are facing their own problems. “All of this creates a state of uncertainty for foreign companies and investors,” said Robert Rubin, who served as the Treasury Secretary during the era of former President Bill Clinton, and has previously participated in the management of “Goldman Sachs”.