Why the Dollar Keeps Getting Stronger
The New York Times
President-elect Donald J. Trump often says he prefers a weaker dollar, but economists and investors think his proposed policies will have the opposite effect.
As the polls and prediction markets showed Donald J. Trump looking more likely to return to the White House, the value of the dollar began to rise. When the result became clear, it soared.
The day after the election, the dollar rose the most it had in years against a basket of other major currencies. And it has continued to rise, hitting a fresh high for the year on Wednesday, as economists and traders considered the policies proposed by the president-elect and revised their forecasts for the world’s dominant currency.
Such strength is a sharp shift from three months of sustained weakening, with the dollar hitting its low point for the year at the end of September. Sharp moves in the value of the dollar can have a destabilizing effect on the global economy, because the U.S. currency is on one side of nearly 90 percent of all foreign exchange transactions. Essential commodities, like oil, are typically priced in dollars.
A stronger dollar makes it cheaper for Americans to buy foreign goods and to travel abroad, but U.S. companies that export products may become less competitive. Outside the United States, a strengthening dollar stokes inflation in countries with weaker currencies and makes it harder to pay debts denominated in dollars, weighing on the global economy.
The recent rise may seem curious, because Mr. Trump has often said that, for the sake of U.S. exports, he would prefer to see the dollar weaken. But his plans to impose tariffs on imports and cut taxes, among other actions, are expected by most economists to do the opposite.
Traders appear to agree: The broad-based dollar index is up about 3 percent since Election Day, a big move for that market over such a short period. Almost every major currency has lost value against the dollar this year, with pronounced declines in recent weeks. The Japanese yen is down about 9 percent and the Mexican peso more than 17 percent against the dollar since the start of the year.
