Fiscal stimulus expected to boost US dollar - Standard Chartered
Investing.com – The US dollar fell sharply following President Donald Trump’s announcement of new tariffs on imports, but Standard Chartered said fiscal stimulus could boost the greenback in the near term.
The US dollar fell nearly 2% on Thursday, hitting a six-month low, after President Trump announced a 10% tariff on all imports, along with higher tariffs on individual countries, notably 54% on Chinese goods.
“We had expected the US to implement tough tariffs due to the need to boost revenue growth, but the US administration has surprised us and the market with the severity of these tariffs,” said analysts at Standard Chartered.
The US dollar has suffered one of its sharpest sell-offs in 15 years, the Bank of England said. Importantly, the sell-off has come amid a struggling stock market, rather than a strong rally.
The dollar’s performance amid the financial crisis
Even during the 2008-2009 global financial crisis, the US dollar acted as a “safe haven”, rallying when financial risks increased. However, this time seems different, according to Standard Chartered.
The Bank of England said one of the reasons for the lack of safe-haven demand for the dollar was “no discernible need for additional dollar liquidity”. This may reflect a lack of urgent financing needs from regions outside the US.
The US dollar outlook for Q2
However, Standard Chartered remains positive on the outlook for the dollar. The bank expects the dollar to strengthen as it enters the second quarter. It believes that new fiscal policies, combined with net stimulus from economic stimulus packages, will help boost economic growth and lead to higher interest rates, supporting the strength of the dollar.
"The market reaction has created some doubts, but we believe that fiscal stimulus will provide a boost to the economy, leading to higher interest rates and a stronger dollar," Standard Chartered said.
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