Trump Making US Dollar More Expensive

One of the most interesting, from an economic point of view, of Trump’s victory is how it has made the US dollar a lot more stronger/expensive. A euro now only cost $1.04, the lowest in a long time, and the exchange rate against most currencies have moved in a similiar, or even more dramatic, way.

There are three reasons for that:

-Trump promises lower taxes (with one exception that will be discussed below) AND higher spending. That is what is called “fiscal stimulus”, which will increase consumer price inflation, and thus induce the Fed to hike interest rates.

-What’s also inducing the Fed to hike interest rates was that before the election they wanted to help Hillary by not raising rates, but now they feel free to do so.

-The third reason is that the taxes on imports (tariffs as they’re often called) that Trump has pledged to impose on at least Mexico and China will reduce American demand on foreign imports, and so also the demand on foreign currencies, raising the price on the American currency.

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