Why the Dollar Is Having Its Worst Year Since 2008, and What It Means For You | Global News Avenue

The worst of the dollar’s start since 2008 is due to growing concerns involving the Trump administration’s unpredictable economic and foreign policy threatening growth.

USD Index (DXY) fell 4.2% at the beginning of the year and ended on Friday. This is the biggest decline in the index since 2008, when the index fell 4.8% during the same period Global Financial Crisis Expand.

Almost all dollar declines have occurred in the past week so far this year as tariffs on Canadian and Mexican goods go into effect. Even the Canadian dollar and Mexican peso should bear the attention of tariffs, which will put the recession into a recession and last week’s opposite to the dollar.

The European currency has been the biggest winner in the White House’s economic and political repositioning. The euro has grown by about 4.5% over the past week, due to increased European defense spending and Stimulate the economy In response to the growing relationship between the United States and the African continent.

Weakness is coming Despite the White House’s wishes. “This administration (and) President Trump is committed to a strong dollar that will lead to.” Treasury Secretary Scott Bessent said in an interview. CNBC Friday morning.

So why did the US dollar fall?

It is counterintuitive for our tariffs to weaken the dollar. On the surface, tariffs should reduce the value of non-U.S. currencies by reducing the U.S. demand for them. but A series of factorsnot only trade balances, drive the value of the US dollar, but most importantly the difference between domestic and international interest rates.

In short, when U.S. interest rates are higher than those in comparable economies, the dollar tends to strengthen other currencies. This is because higher interest rates make U.S. debt relatively attractive to investors, and because U.S. debt is denominated in US dollars, demand for debt drives demand for money.

“When the dollar strengthens, it means more foreign capital flows into the United States,” said Rob Haworth, senior investment strategy director at Bank of America Asset Management.

USD and fiscal revenue Climb steadily In the last quarter of 2024, as a response from investors Disbanded Progressive and surprisingly flexible labor markets have expanded their expectations for future interest rate reductions. Meanwhile, the global economy is showing signs of pressure, especially in Europe, where the European Central Bank appears ready to continue to steadily lower interest rates.

In recent weeks, a series of developments in Washington — massive cuts in satellites, federal labor and budgets, and raising geopolitical uncertainty — have begun to threaten the economic strength that makes interest rates higher. Some economists have warned Tariffs may initiate a “stagnant” round, a combination of slow growth and high inflation.

As the risk of recession increases, investors believe lowering tax rates is back on the table. Until mid-February, most investors expect the Fed to Cut interest this year most. Now, by the end of the year, most people are expected to have three cuts.

What does this mean to you?

The value of the dollar will affect tariffs for U.S. businesses and consumers. A weaker dollar can boost the attractiveness of U.S. exports, thereby stimulating economic growth. This will also increase the revenue of multinational corporations among large foreign companies.

Meanwhile, the weaker dollar increases the cost of imported goods. This would in theory encourage more domestic production, but in all respects, there is currently no manufacturing base in the United States that can support it without imports. According to the Department of Commerce, it can be said that more than half of the goods and services purchased in the United States in 2023 are “made in the United States.” Strengthening domestic manufacturing to increase share will take time.

If the economic outlook is going to stabilize in the coming months, one might expect the dollar to appreciate, which could Reduce import costs And offset some tariff-related price increases. But, like the weaker dollar, it is a trade-off: dollar strength will increase the cost of U.S. exports, giving the weight of investment in domestic manufacturing.