Several political and economic factors influenced the rise of the dollar in recent weeks, but the most notable was the wave of tariffs announced by Donald Trump. These new measures brought a perception of performance considered surprisingly resilient in the United States economy. This article examines how these tariffs have affected specific currencies, including the Swiss franc and the Canadian dollar.
Dollar rises as a global reaction to Trump’s tariffs
The dollar headed for its strongest weekly performance in almost three years against other major currencies, maintaining momentum on Friday after U.S. President Donald Trump imposed new tariff rates on dozens of trade partners. Some of the currencies of the countries that were hit the hardest, such as Switzerland, which now faces a 39% rate, fell sharply. The Swiss franc touched its weakest in six weeks, while the Canadian dollar was set for a seventh straight weekly loss.
The dollar also gained against other currencies due to drivers other than tariffs. The yen headed for its largest weekly loss this year after the Bank of Japan signaled it was in no hurry to resume interest rate hikes, prompting Finance Minister Katsunobu Kato to say on Friday that officials were “alarmed” by currency moves. A large part of the dollar’s strength this month has come from the perception among investors that Trump’s tariffs have not derailed the economy and, so far, have not drastically lifted inflation.
Fed cautious and market on alert
The Federal Reserve, despite pressure from Trump on Chair Jerome Powell to cut rates, has indicated it is in no rush to do so. Friday’s payrolls report may not move the needle much on that assumption, even if a weaker reading elicits some selling of U.S. assets like the dollar, according to IG strategist Chris Beauchamp.
“Fundamentally the U.S. economy is okay, it’s not in the most wonderful place, tariffs will hurt a little bit and the market looks like it could be vulnerable in the short term to more selling, simply as an excuse to take some money off the table to sit it out and wait and see what happens,” he said.
Direct impacts on tariff target currencies
Besides the Swiss franc and the Canadian dollar, other currencies also felt the effects of the new US tariffs, reflecting the reconfiguration of global expectations around exchange rate stability. The strengthening of the dollar against these currencies demonstrates market confidence in the strength of the US economy.
The franc fell against a range of currencies, surrendering its habitual safe-haven label in the face of a selloff in stocks and commodities, in response to Trump’s hefty duties and to his demand that pharma companies – key Swiss exporters – lower the prices at which they sell to U.S. consumers.
The signal that the tariffs are more severe than initially suggested demonstrates Washington’s intention to treat trade relations in a one-way manner, which led to adjustments in both the foreign exchange market and the monetary policy strategies of several affected countries.
The dollar also advanced on the Canadian dollar CAD=EBS, up 0.1% at $1.3867, after Canada was hit with a 35% tariff, instead of the threatened 25%. The euro EUR=EBS remained pinned near an almost two-month low around $1.14093, as it continues to be weighed down by what markets see as a lopsided trade agreement with Washington.
Market reaction and outlook for the dollar
The strengthening of the dollar demonstrates not only the immediate response to tougher trade policies but also the perceived resilience of the U.S. economy in the face of external challenges. Although the dollar’s trajectory may encounter resistance in the medium term if trade tensions escalate, the current situation reveals a market willing to reward U.S. stability and predictability.
GCN.com/Reuters