(Bloomberg) -- The dollar climbed to the strongest level in two months as former President Donald Trump defended proposals to dramatically raise tariffs on foreign imports.
The Bloomberg Dollar Spot Index rose as much as 0.3% on Tuesday as the Republican candidate cited potential trade policies with economies including Mexico, Europe and China in an interview with Bloomberg News Editor-in-Chief John Micklethwait. The Mexican peso dropped as much as 1.7% against the US dollar, while the euro extended losses.
“Markets are paying close attention to Trump since expectations for a Trump win have gone up,” said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi, US. “Just three weeks away from the election, markets need to price in prospects of a Trump win — and in currency markets, that will be directly affected by tariff talk.”
The prevailing view of Wall Street economists is that Trump’s trade policies will ultimately support the dollar, since import tariffs would stem the currency’s flow overseas and potentially drive up inflation and interest rates. A prolonged trade war also stands to weigh on global risk sentiment, further supporting the haven greenback.
“Trump’s flagship proposals across trade, fiscal and foreign policy are dollar supportive,” said Skylar Montgomery Koning, a foreign-exchange strategist at Barclays Plc, which expects to see the biggest impacts against economies with which the US has a large trade deficit, like China.
Trump on Tuesday called tariffs “the most beautiful word in the dictionary” and said he’d use them to defend the dollar’s reserve currency status. He also mentioned the trend of US companies building some of their factories in Mexico, adding to pressure on the peso.
“His remarks reinforce our view that Trump’s strategy is likely to hurt confidence in Mexico,” said Thierry Wizman, global FX and rates strategist at Macquarie Group Ltd. Wizman is expecting the peso to weaken to 20.50 per US dollar by the end of 2025. “There’s a risk of even sharper losses for the Mexican peso.”
--With assistance from Maria Elena Vizcaino.
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