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Donald Trump’s victory in the US elections has brought about changes in the world of currencies. U.S. stocks and the dollar rose significantly after the election. The markets are thus anticipating a series of reactions expected from the Trump administration’s economic policy measures.
To better understand these measures, it is useful to distinguish short-term effects from long-term ones. The short-term effects are expected to initially strengthen the dollar, but the long-term effects of Trump’s expected economic policies are expected to increase its depreciation potential.
The factors that strengthen the dollar…
Reductions in the corporate tax rate are likely to further stimulate investment activity and therefore economic growth in the United States. Additionally, imposing tariffs on imports from China, and possibly elsewhere, is expected to slow the decline in inflation. However, it is not yet clear to what extent Trump will be able to impose comprehensive tariffs on all other trading partners, as announced, in addition to China.
Indeed, it could impose tariffs on trading partners and individual product categories if they pose a national security risk, if they are introduced on the basis of unfair trade practices or if a national emergency exists. It is difficult to argue that, for example, the importation of a cancer drug produced in Switzerland meets one of these three criteria.
Nonetheless, there is currently concern that tighter trade policy and the imposition of tariffs could also fuel inflation in the United States. As a result, the Federal Reserve (Fed) may lower interest rates less quickly than before, leading to a stronger dollar.
…and those who denigrate it
In the longer term, however, structurally higher inflation in the United States should lead to even greater depreciation potential for the greenback.
Trump’s proposed immigration policy could also lead to higher inflation in the United States in the medium and long term. If large numbers of illegal immigrants are deported, it could lead to a shortage of cheap labor, fueling wage growth and inflation.
According to our calculations, the purchasing power parity rate and therefore the equilibrium exchange rate of USD/CHF is less than 80 cents. If inflation in the United States continues to significantly exceed that in Switzerland in the years to come, this reference value, towards which the USD/CHF will probably tend sooner or later, will move even further downward.
As the editor of World-Today-News.com, I am thrilled to present this exclusive interview with two experts on the recent changes in the world of currencies due to the US election results. Our guests are Dr. Sarah Johnson, a leading economist specializing in international finance and currency markets, and Mr. David Lee, a renowned political analyst with extensive experience in US politics and trade policies.
Dr. Sarah Johnson: Hello, world! It’s an honor to be here today and talk about these important developments in the currency markets. Can you tell us more about the short-term effects of Donald Trump’s victory on the US dollar and how they could impact other countries’ economies?
Mr. David Lee: Absolutely, Dr. Johnson. President Trump’s economic policies, especially the proposed tax cuts and tariffs on imports from China, have created a mixed response in the currency markets. In the short term, we’ve seen an increase in the value of the US dollar as investors respond positively to these potential economic growth stimuli. However, in the long run, experts predict that increased inflation and protectionist policies could lead to the dollar’s depreciation. How do you see these predictions panning out?
Dr. Sarah Johnson: Well, as you mentioned, Mr. Lee, there are both short-term and long-term factors at play here. The reduction of corporate tax rates should stimulate investment activity and economic growth in the US, which is likely to strengthen the dollar initially. On the other hand, the potential for protectionist policies, such as imposing tariffs on imports from China, could slow down the decline in inflation and even fuel it to some extent. This might cause the Federal Reserve to rethink its monetary policy and potentially lead to a stronger dollar. However, in the longer term, higher inflation rates in the US could result in a weaker dollar due to its purchasing power parity. What are your thoughts on this, Mr. Lee?
Mr. David Lee: I agree that the impact of President Trump’s economic policies on the dollar’s value is complex. His proposed immigration policy could also have a significant influence on the labor market and inflation rates, potentially leading to a stronger or weaker dollar over time. Can you elaborate more on this
