Monex USA's director of trading Juan Perez joins Marketplace's Justin Ho to talk trade wars, the strength of the dollar, and a shifting economic outlook.
Full Transcript:
[00:00:00] Kristen Schwab
This is Marketplace. I’m Kristen Schwab. The economy is on tariff watch this week. Yes, I know that lately most weeks are tariff watch weeks, but the Trump administration has given itself a Wednesday deadline to finalize its reciprocal tariff plan and reportedly an across the board 20% global tariff is back on the table.
As we know, markets have reacted to these back and forth tariffs with quite a bit of volatility. As of today, the last trading day of the first quarter, the S and P and Nasdaq posted their worst quarters since 2022. But the stock market isn’t the only thing that’s been trending down. So has the value of the dollar down more than 4% so far this year?
Marketplace’s Justin Ho reports.
[00:00:44] Justin Ho
A lot of investors went into the year with a pretty optimistic outlook for the US Economy, says Juan Perez, director of trading at Monex USA.
[00:00:53] Juan Perez
There was going to be a lot of policies coming from the Trump administration and the pro business, the pro growth.
[00:00:59] Justin Ho
But then the trade wars kicked off. Perez says investors optimism quickly faded.
[00:01:04] Juan Perez
The ultimate consensus is that trade wars will affect growth. And right now the narrative is very much not so positive for the United States.
[00:01:14] Justin Ho
Investors who are nervous about economic growth often react by moving their money out of relatively risky assets like stocks.
[00:01:22] Christopher Vecchio
And that flow, if it’s significant enough among enough investors can actually alter the trajectory of a currency.
[00:01:28] Justin Ho
That’s Christopher Vecchio, head of futures and foreign exchange at the research company Tasty Live. He says that’s because US Stocks and other American financial assets are bought and sold in dollars. So when demand for stocks falls, demand for dollars does too. Right now, Vecchio says a lot of foreign investors are starting to think twice about whether they want to invest in the US to begin with, those foreign.
[00:01:50] Christopher Vecchio
Investors have been selling their stocks. They’ve been taking those US Dollars, converting them back to euros to pounds, what have you, and investing in their domestic markets once again.
[00:01:59] Justin Ho
Another factor that’s been luring money away from the dollar is the yield on other countries government bonds, says Vishy Tirupattur, chief fixed income strategist at Morgan Stanley.
[00:02:09] Vishy Tirupattur
So for example, in Japan, local currency government bonds in Japan are yielding meaningfully greater than than what they were yielding six months ago.
[00:02:18] Justin Ho
Thing is, Tirupattur says tariffs could cause other countries economies to slow down too. And that means their government bonds might not keep attracting investors.
[00:02:26] Vishy Tirupattur
The question really is will the tariffs weaken their growth prospects more? Would their central banks have to cut rates more than they would have otherwise?
[00:02:35] Justin Ho
And if that happens, the dollar’s value could start to strengthen again. I’m Justin Ho for Marketplace.
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