Count the U.S. dollar as one of the many casualties of erratic U.S. trade policy, as intensified uncertainty has undermined the strengths that underpinned the dollar’s pre-eminent global status.
In a new report, economists at Desjardins Group said that, while the U.S. dollar may enjoy a rebound in the short-term, the longer-term direction for the greenback is down.
“We believe the decade-long bull market for the U.S. dollar has come to an end, as the notion of ‘American exceptionalism’ that supported it is no longer assured,” it said.
The market’s belief in the unshakeable strength of the U.S. economy that drove the dollar’s valuation has been shaken by the “chaos” following the introduction of the so-called ‘Liberation Day’ tariffs, the report said — which, in turn, “has raised concerns over corporate profit margins and real incomes in the U.S.”
And, at the same time, the U.S. turn against its traditional trade partners have pushed Europe and China to “double down on fiscal and structural policy to boost their own growth prospects,” the report noted.
Against this backdrop, “investors have voted with their feet and reduced allocation to U.S. assets in favour of global — especially European — assets,” it said.
In particular, equity investors have “turned away from America’s tech-heavy stock market towards Europe’s more industrials-heavy indices,” the report said.
Additionally, a shift from dollars to Euros “might play out over several months or even years,” it noted.