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The US dollar (DX=F, DX-Y.NYB) continued its rally on Wednesday, extending gains after the currency hit a one-week low according to a report in the Washington Post on Monday That suggested President-elect Donald Trump would not commit to an aggressive tariff plan.
But just two days later, CNN reported Trump could declare a national economic emergency to impose universal tariffs, which would push the dollar even higher while stock markets falter.
The U.S. dollar is “perfectly valued,” Bank of America’s global rates and currencies research team, led by foreign exchange analyst Athanasios Vamvakidis, wrote in a note published Wednesday. “The USD has risen sharply from already high levels since the US election.”
The currency’s price movement was largely driven by two main catalysts: Trump’s election and subsequent Republican victory, and the Fed’s rebalancing of future easing measures in light of strong economic data.
“American exceptionalism in terms of better economic growth, faster productivity growth, superior stock market performance and higher returns all act as a collective magnet to attract capital to the United States,” wrote Blake Millard, investment director at Sandbox Financial Partners.
Even data that is often viewed as not so good, such as stubborn price pressures and inflation headwinds, can be positive for the dollar.
“With the Federal Reserve expected to cut interest rates less than most other major central banks, expected interest rate differentials favor the dollar,” Millard wrote. “Furthermore, tariffs will restrict the flow of goods, resulting in fewer dollars flowing abroad and decreasing demand for foreign currency.”
And with Most economists agree Since Trump’s proposed tariff plans will lead to higher inflation over time, the cycle surrounding bullish dollar sentiment remains intact.
