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After tariffs, what’s Trump’s next Move? Watch out US dollar weakening

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As the dust begins to settle down on President Donald Trump’s latest tariffs, speculation is growing over his next move. With the dollar as the world’s reserve currency, Trump has powerful tools to pressure allies—credit access, dollar funding, and payment systems, which may be wielded as powerful weapons to subject compliance from foes and allies together.

Deploying these weapons would carry major risks for the U.S. economy and could backfire, but some experts warn they remain on the table if tariffs fail to cut the trade deficit. A weakening US dollar can have wide-ranging effects across global markets, businesses, and consumers. When the dollar loses value against other currencies, imported goods become more expensive for American consumers, increasing the cost of electronics, automobiles, and household products. Inflationary pressures may also rise as businesses pass on higher costs, eroding purchasing power.

On the other hand, a weaker dollar benefits US exporters by making American goods and services more affordable for foreign buyers. This can boost demand for US-made products, potentially leading to increased revenues for companies with international markets. Sectors like manufacturing, agriculture, and tourism often see gains as foreign customers find US goods and destinations more cost-effective.

“I could well imagine Trump getting frustrated and trying to implement wacky ideas, even if the logic isn’t there,” Barry Eichengreen, economics professor at UC Berkeley, told Reuters.

The administration’s apparent goal is to weaken the dollar to rebalance trade, potentially through a Mar-a-Lago Accord—a nod to the 1985 Plaza Accord and Trump’s Florida resort.

Stephen Miran, a Trump adviser, has suggested the U.S. could pressure foreign central banks to strengthen their currencies by leveraging tariffs and security commitments. But analysts say such a deal is unlikely, as higher interest rates would risk recession in Europe and Japan, and China needs a weaker yuan to revive growth.

If currency talks fail, Trump could take more extreme measures, such as restricting foreign access to dollar liquidity. Cutting off Federal Reserve swap lines—vital for global banks in times of crisis—could roil financial markets and hit European, Japanese, and British lenders hardest. Investors and financial markets also react to a weakening dollar in various ways.

US-based investors with holdings in foreign assets may see gains as those investments appreciate in dollar terms. Conversely, foreign investors holding US assets could experience lower returns if the dollar depreciates. The currency’s decline may also impact the bond market, as investors demand higher yields on US Treasury securities to compensate for currency risk.

Though the Fed controls these programs, Trump’s reshuffling of key financial regulators has raised concerns. “It’s no longer unthinkable that this could be used as a nuclear threat in negotiations,” said Spyros Andreopoulos of Thin Ice Macroeconomics.

But such a move could ultimately weaken the dollar’s status as the world’s dominant currency.

Commodity prices often respond significantly to dollar fluctuations. Since key commodities such as oil and gold are priced in US dollars, a weaker dollar generally pushes their prices higher. This can lead to increased costs for businesses that rely on raw materials, further fueling inflationary trends. On the flip side, commodity-producing countries may benefit from stronger revenues as the prices of their exports rise.

Another pressure point is the U.S. payments industry. Visa (V.N) and Mastercard (MA.N) process two-thirds of card transactions in the eurozone. While China and Japan have developed alternatives, Europe remains reliant on U.S. payment networks.

If the White House pressured these firms to cut off services—similar to actions taken against Russia—European consumers would be forced to rely on cash or slow bank transfers. “A hostile U.S. is a huge setback,” said Maria Demertzis of the Conference Board think tank. International trade dynamics can shift as countries reassess their economic strategies in response to currency fluctuations.

Ultimately, a weaker dollar carries both advantages and disadvantages depending on one’s perspective. While US manufacturers and exporters may enjoy competitive benefits, consumers and businesses reliant on imports could face higher costs. Investors must navigate currency risks carefully, and policymakers must balance economic growth with inflation control. The dollar’s movements influence economies worldwide, making its strength or weakness a critical factor in global financial stability.

Weakening Dollar

A weakening US dollar can have wide-ranging effects across global markets, businesses, and consumers. When the dollar loses value against other currencies, imported goods become more expensive for American consumers. Precisely because it takes more dollars to buy the same amount of foreign currency, raising the cost of imported electronics, automobiles, and everyday household products. Inflationary pressures may also increase as businesses pass higher costs on to consumers, reducing purchasing power.

On the other hand, a weaker dollar benefits US exporters by making American goods and services more affordable for foreign buyers. This can boost demand for US-made products, potentially leading to increased revenues for companies with international markets. Sectors like manufacturing, agriculture, and tourism often see gains as foreign customers find US goods and destinations more cost-effective.

Investors and financial markets also react to a weakening dollar in various ways. US-based investors with holdings in foreign assets may see gains as those investments appreciate in dollar terms. Conversely, foreign investors holding US assets could experience lower returns if the dollar depreciates. The currency’s decline may also impact the bond market, as investors demand higher yields on US Treasury securities to compensate for currency risk.

Commodity prices often respond significantly to dollar fluctuations. Since key commodities such as oil and gold are priced in US dollars, a weaker dollar generally pushes their prices higher. This can lead to increased costs for businesses that rely on raw materials, further fueling inflationary trends. On the flip side, commodity-producing countries may benefit from stronger revenues as the prices of their exports rise.

Government policies may force the Federal Reserve respond by adjusting interest rates to stabilize the currency and control inflation. Meanwhile, other central banks might intervene in currency markets to prevent excessive volatility. International trade dynamics can shift as countries reassess their economic strategies in response to currency fluctuations.

 

Quick Analysis: What’s Middle East Conflict’s Potential Impact on Global Economy? 4 Possible Future Scenarios

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Wall Street’s main indexes opened lower on Wednesday after escalation in geopolitical tensions in the Middle East though markets are likely not to come under sway. Here’s the impact visible so far and the possible future scenarios:

  • Israeli Retaliation: Iran’s missile strike on Israel, involving 180 ballistic missiles, significantly raises the chances of an Israeli counterattack. A likely target could be Iran’s Kharg Island facility, which handles 90% of the country’s oil exports.
  • Economic Risk: If Israel strikes and Iran responds by restricting access to the Strait of Hormuz—through which 20% of the world’s daily oil supply passes—crude oil prices could surge above $100 per barrel, similar to the 2022 spike following Russia’s invasion of Ukraine.
  • Central Bankers on Edge: The U.S. Federal Reserve and European Central Bank (ECB) are closely monitoring these developments. Energy price hikes from a prolonged conflict could derail plans to reduce interest rates, potentially reigniting inflation that central banks have worked hard to control.
  • Energy Supply Shock: Despite current stability—due to minimal casualties and Israel’s potential focus on Hezbollah in Lebanon rather than direct strikes on Iran—a severe disruption in oil exports would trigger energy supply shocks. Saudi Arabia’s ability to increase oil production could soften the blow, but sustained tensions could strain global supplies.
  • Inflation Dilemma: Central banks, especially in the U.S. and Europe, struggled to manage energy shocks during the 2022 power crisis, which led to inflation spiking to high-single-digit levels. A similar surge, along with other inflationary factors like the U.S. longshoremen strike, could force central bankers into a tough choice: either continue rate cuts and risk further inflation or pause/raise rates and push the economy toward recession.
  • Investor Sentiment: As of now, markets seem unaffected by these risks. In Europe, traders expect the ECB to cut rates again on October 17, while U.S. derivative prices suggest the Fed’s rates could fall to 3% by October 2025 from the current 4.9%.
  • Geopolitical Ripple Effect: Israeli Prime Minister Benjamin Netanyahu vowed Iran would pay for the attack, while Tehran warned of “vast destruction” in case of retaliation, signaling the possibility of a wider regional conflict. Any involvement by Israel’s allies could lead to a broader confrontation, further unsettling global markets.
  • Immediate Market Impact: Oil prices have already risen by 5%, with Brent crude trading at $75.3 per barrel amid concerns about escalating tensions.

Possible Future Scenarios

  1. Surge in Oil Prices: A direct strike on Iranian infrastructure, or a disruption in the Strait of Hormuz, could send oil prices soaring above $100 per barrel. This would have immediate inflationary consequences for the global economy, forcing central banks to reconsider planned interest rate cuts.
  2. Inflationary Pressures: A prolonged Middle East conflict could trigger another energy crisis, worsening inflation in the U.S. and Europe. Central banks may be forced to halt or reverse rate-cutting plans, risking a global economic slowdown or recession.
  3. Geopolitical Instability: Any military escalation between Israel and Iran could lead to broader regional conflict, drawing in global powers and further disrupting oil supplies. This could amplify investor fears and market volatility.
  4. Delayed Monetary Easing: If inflation spikes due to rising energy costs, the U.S. Federal Reserve and ECB may delay or slow down their plans for monetary easing, prolonging high borrowing costs and hindering economic recovery efforts. Even RBI might delay its decision to ease interest rate cuts now.

Coronavirus: Who is the loser in US-WHO rift? Global Health

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When US President Donald Trump tweeted a letter to WHO Director-General Tedros Adhanom Ghebreyesus last week threatening to make permanent the US freeze on WHO funding that began in April, unless the organization “can actually demonstrate independence from China” within 30 days, it has heralded another onslaught on fighting the coronavirus pandemic.

If President Trump sidelines the World Health Organization, experts foresee incoherence, inefficiency and resurgence of deadly diseases. The fissure between the United States and the World Health Organization has unveiled further the repercussions which could range from a resurgence of polio and malaria to barriers in the flow of information on COVID-19.

On the flip side, scientific partnerships around the world would be damaged, and the United States could lose influence over global health initiatives, including those to distribute drugs and vaccines for the new coronavirus as they become available, according to health experts.

“I don’t think this is an idle threat,” says Kelley Lee, a global health-policy researcher at Simon Fraser University in Burnaby, Canada. The acrimony is poorly timed when the need of the hour is for international coordination and cooperation to contain with the coronavirus. “In this pandemic, people have said we’re building the plane while flying,” Katz says. “This proposal is like removing the windows while the plane is mid-air,” said Rebeca Katz, director of the Center for Global Health at Georgetown University in Washington DC.

Trump’s Allegations

Trump’s letter, which he tweeted on 18 May, reiterated his earlier allegations that the WHO intentionally ignored reports that COVID-19 was spreading between people in Wuhan, China, in December itself. “I cannot allow American taxpayer dollars to continue to finance an organization that, in its present state, is so clearly not serving America’s interests,” he wrote.

A few of Trump’s claims such that the medical journal The Lancet had published on the new coronavirus in December was debunked the next day when the journal issued a statement calling the claim factually incorrect because their first reports on COVID-19 were published on 24 January.

Tedros has reiterated his commitment to an independent evaluation of the WHO’s response to COVID-19, and an assessment of the organization’s operations in the first part of 2020 that has already been made public. But when reporters asked Tedros, he said, “Right now, the most important thing is fighting the fire, saving lives.”

Last year, the US government gave the WHO roughly US$450 million. Nearly 75% of that was voluntary, and the other quarter was mandatory — a sort of membership fee expected from the 194 member countries, adjusted by the size of their economies and populations. The United States is the biggest donor, representing about 15% of the WHO budget.

So far this year, it has paid about one-quarter — $34 million — of its membership dues, according to a WHO spokesperson. Voluntary funds are more complicated because a large portion were paid last year, however the spokesperson says that the freeze has put a hold on new agreements, meaning that the full-blown effects of the decision will be felt in 2021.

The US government provides 27% of the WHO’s budget for polio eradication; 19% of its budget for tackling tuberculosis, HIV, malaria and vaccine-preventable diseases such as measles; and 23% of its budget for emergency health operations. David Heymann, an epidemiologist at the London School of Hygiene and Tropical Medicine, says this will also amount to resurge of polio.

The WHO will survive a US funding freeze in the next few months as other donors will help to compensate for the financial gap during the pandemic. Already, Chinese President Xi Jinping pledged $2 billion to the coronavirus response.

Even the United States would lose its influence on what the agency does and eventually lose its voting rights. Currently, only three countries — South Sudan, Venezuela and the Central African Republic — are in this category.

With that loss, the United States will relinquish its ability to shape health agendas around the world, says Lee. Ironically, that is exactly what the Trump administration is complaining about. “If the US pulls out and leaves a vacuum, it will be filled by other countries, like China,” she says. “You’ll see a self-fulfilling prophecy.”

 

 

Sensex Crashes by 1100 Points

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While the market is going agogue over the sudden crash of Sensex by 1100 point in intra-day trading on Monday, eroding about Rs.4 lakh crore from the pockets of shareholders, there is one reason for optimists to smile.  BUY now!

Many TV show experts are suggesting the move to buy but foreign investors are driven by the ripple effect created by Yuan’s unrealistic devaluation that has all the potential to kick off another Asian Currency Crisis of the mid-1990s.

The ripple effect is seen in virtual shock and apathy in the trading session in the morning to make any trade decisions by buyers and brokers alike and even the Indian rupee hit a highest low of Rs.66.50, which is lowest since September 2013.

Monday’s market crash was the biggest after 2008 recession, as on October 24, 2008, it recorded a low of 1204.88 points. But Monday crash is different as it stems directly from the Yuan’s devaluation.

Speculations are high that the 2008 recession was driven by the US downturn while the 2015 would be the Year of China, with its extreme global reach. Another reason could be to bring the markets heed the global opinion on China’s political overtures, especially aimed at Japan.

Japan Prime Minister Shinzo Abe on Monday cancelled his state visit to China and the political fallout could be a trigger to anti-China sentiments bringing down Asian markets for now. The long-term impact will be known only in a couple of months when markets continue to be volatile.

While the Indian market reacted cautiously last week when China announced one of its worst devaluation of Yuan, the possible market reaction in India on the opening day of the week is abrupt and unexplainable.

The slowdown of the Chinese economy may recover from its devaluation but it is strange to see the Indian market reacting similarly as devaluation of the Indian rupee on par with its Chines counterpart is unadvisable for the long term market stabilization.

However, the market needed to correct itself from the buoyant artificial picture being projected by the industry in India following the BJP win last year. Though the Modi government is known for its pro-business and pro-industry policies, the undue delay in passage of bills and the bedlam in parliament have had enough reasons not to cheer about for the industry.

In fact, Indian recovery map was not as great as China or the US since 2008 crash as its macro economic indicators like current account deficit and forex reserves remained same, said Nirmal Jain, Chairman and Managing Director IIFL in a TV show on CNBC-TV18.

Another reason for the abrupt fall is that FIIs or foreign investors are quick to withdraw their investments in India after the Chinese market went down over the Yuan devaluation. Unless Indian investors repose their faith in the markets, Sensex is unlikely to stabilize in the next few days, but experts have advised buying for their clients now.

Meanwhile, European markets have responded taking the curve down as of now and in few hours when the US West Coast opens its stock exchanges, the bells will ring in the effect at least initially.