Currency markets that only a few months ago assumed a trade war would lift the U.S. dollar now suspect that a full-scale devaluation may be underway, suggesting few market players have any clear handle yet on the administration's dollar plans.
Much like the scuppered post-election rally in Wall Street stocks <.SPX>, the dollar <.DXY> has been a major casualty of President Donald Trump's unfolding import tariff plan, partly due to what his Treasury Secretary Scott Bessent likes to call a trade policy of "strategic uncertainty".
If - as we are told routinely - markets hate uncertainty, then the conduct of that policy is playing out as you might expect. It certainly seems to have spooked many of the overseas investors who have been propping up punchy U.S. asset valuations for years.
But more than three months into the new presidency, the question of what the administration really wants to do with the dollar remains fuzzy in most people's eyes.
'STRATEGIC' HEADSCRATCHING
Trump made it perfectly clear throughout his campaign that higher tariffs would be a central plank of his economic policy, and, in turn, the dollar climbed sharply after he was voted back into the White House in November.
The basic assumption back then was that inflationary tariffs would keep U.S. interest rates elevated while undermining growth and borrowing rates around the world, forcing the dollar higher in the process and limiting the impact of the tariffs, as in 2018.
In a Reuters poll of more than 70 strategists in early January, for example, the majority assumed the greenback would build on the near 8% appreciation in the final quarter of the year - with nearly two thirds assuming it would reach parity with the euro this year.
Even many Trump advisers were braced for something similar.
The tariffs that emerged in the six weeks after the inauguration were not that far off what the president had flagged previously. Yet investors acted as though they had been bamboozled, and the dollar suddenly fell back sharply.
