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Trump’s “trade” bets for a stronger dollar and higher bond yields have returned this year after investors get a more Bearish opinion on the economic consequences of the global war of the US administration.
The US currency has fallen and the treasures have been collected since the beginning of January, confusing the extensive expectations of investors that President Donald Trump’s plans for trade tariffs and tax cuts would maintain inflation and interest rates.
“Despite what you feel, if you really magnify the beginning of this year, many of the trade (Trump) have not worked,” said Jerry Minier, co -director of G10 Forex Trading at Barclays. “This is making people reassess.”
Investors have withdrawn from Trump’s popular trade partly because the president’s fees were less aggressive than they were afraid. But many are also worried that the uncertainty ignited by the banned trade war can begin to damage confidence in the US economy, undermining the Bullish market response to Trump’s elections in November.
The “average menu” of folk trades, such as betting against the euro or Chinese renminbi, has not rewarded investors this year, Mine said. “You continue to need the reason for the dollar (rally) to continue to last – at least for now those things are drawn,” he added.
Bets that Trump’s inflationary policies would give the federal reserve less space to lower interest rates and increase depression in US trading partners helped to run a large dollar rally. The US currency won 8 percent against a basket of its peers from late September to the end of the year.
Assets managers have been put in a long net position of the dollar in December for the first time since 2017, according to an analysis by the CME Group of the future currency contracts. But this year the US currency has fallen 0.4 percent.
Higher inflation expectations also helped push the 10-year treasure yields, which move in the opposite way to the price, to 4.8 percent in January, the highest of them since the end of 2023.
But they have now fallen back to 4.54 percent, as market concentration has passed from inflation to fear that the US wild economy may be broken under the new president.
“There is a fundamental fear that growth can slow down,” said Torsten Slok, chief economist at Apollo investment firm, with a trade war “potentially having some growth implications.”
The bond market is “caught between the fear that inflation may be a little higher due to a trade war, and a fear that US growth or global growth may be slower,” said David Kelly, Global Chief in JPMORGA Asset Management.
This month Trump withdrew at the eleventh hour for threats to impose comprehensive tariffs on Mexico and Canada, giving both countries a 30-day delay. But he pushed forward with 10 percent additional import fees in China, and late Friday the president said he could also hit Japan with new taxes to handle the trade deficit with the most important US ally in the Indo-Religion.
He has also announced plans for 25 percent fees on steel and aluminum imports.
Developing markets, which are widely expected to be a special victim of commercial warfare and a stronger dollar, have also opposed expectations in recent weeks, after a gloomy 2024 in which some coins touched many years of landing.
Since the beginning of Trump’s second term last month, the Chilean pesso has won more than 3 percent, while the Colombian Peso and the Brazilian real are more than 6 percent against Greenback.
The Strategists of the Bank of America have become positive in developing markets in the belief that bets on a higher dollar, which is in the strongest effective exchange rate as since 1985, have been excessive.
“It is a very extreme positioning, and a lot of tariff noise that are already priced,” said David Haner, head of the global strategy of fixed income markets.
“It’s not like it couldn’t get worse – of course, can – but at the moment, given the back and in recent weeks, we have appreciated in a fair amount.”
Investors say developing central market banks have room to reduce borrowing costs to support economic growth, as it increases aggressive levels in recent years to treat inflation. Mexico, Czecheke Republic and India all lowered the rates last week.
Real interest rates – which are arranged for inflation – are also higher in most of the developing world than in the US, making it lucrative to borrow in dollars and invest in markets in development.
“Whether you expect or diligent, local coins have become very, very cheap – even if the dollar does not weaken from here, and simply stabilizes,” said a developing market fund manager who had just returned from Brazil looking for cheaply price assets.
