Investors around the world are being advised to brace for increased market volatility as trade tensions under U.S. President Donald Trump's administration may escalate into full-blown currency wars. Nigel Green, CEO of deVere Group, a leading global financial advisory firm, has highlighted the potential shift from trade disputes to currency conflicts as an underappreciated risk that could impact global markets significantly.
Green pointed out that President Trump's previous term was marked by a dissatisfaction with a strong U.S. dollar and accusations against major trading partners, such as Europe and China, for manipulating their currencies to gain a competitive advantage. With Trump's return to office, similar policies are expected to be pursued, potentially leading to retaliatory measures from other nations.
The Federal Reserve's cautious approach to interest rate cuts and the positive growth outlook for the U.S. have recently contributed to a strengthening dollar. However, the dollar's strength could prompt the Trump administration to pressure trading partners into devaluing their currencies to counteract the impact of tariffs and maintain the competitiveness of U.S. exports.
Central banks in Europe and China are already responding to their respective economic challenges, with the U.S. dealing with inflation and growth, while Europe is trying to avoid stagnation and deflation. The European Central Bank (ECB) may maintain lower interest rates for an extended period, which could lead to further weakening of the euro against the dollar.
The anticipation of significant tariffs from the U.S. has raised concerns about the growth prospects of trading partners like Europe and China. In response, these regions might adopt more aggressive monetary policies to stimulate their economies, potentially leading to currency devaluation. China could use the renminbi as a buffer against tariff impacts, and Europe might see deposit rates drop further into negative territory to prevent a recession.
Green warns that the interplay between trade policies and currency values could result in a chaotic spiral of tariffs and retaliatory devaluations, creating inflationary pressures in the U.S., disrupting global supply chains, and impacting risk-sensitive currencies.
In conclusion, Green emphasizes that Trump's policies are likely to produce both winners and losers in the markets, with the dollar's trajectory being a key factor to watch. He advises investors to prepare for the potential fallout from trade and currency conflicts to avoid being caught off guard in what could become a highly volatile environment.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.