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The excitement following Donald Trump’s election has turned into significant instability in the financial market due to potential trade policies that could hinder US economic growth. An illustration of this shift is the dollar, which has erased its post-election gains within just two months of the new administration.
Earlier this week, the most recent development was when Trump announced a rise in tariffs on China, Canada, and Mexico, escalating tensions in the trade war.
The Dollar Index, which measures the dollar against the top six world currencies, ended the week at 103.85, marking a 3.5% decline and hitting its lowest point since November 5th of the previous year when it was at 103.42.
The Bloomberg Dollar Spot Index experienced its largest weekly decline since November 2022, dropping by 2.4%.
The tariffs implemented by Trump, though postponed, brought about uncertainties and raised concerns about the US economic outlook. Investors are worried not only about the trade war but also about policies like tax reductions and widespread public sector job cuts.
The country’s potential inflation increase poses a risk of “stagflation,” a phenomenon not seen in the US for 50 years, amid the slower economic growth.
The most recent information from the Employment Report indicates that job growth in the US remained steady last month, but the unemployment rate rose, suggesting a less robust labor market.
The market’s existing negative outlook was further strengthened, leading to speculation that the Federal Reserve may reduce interest rates soon. Fed President Jerome Powell mentioned today that he will hold off on deciding about interest rates until the impact of Trump’s policies on the economy becomes clearer.
“The new administration is currently working on making important changes in four specific areas: trade, immigration, financial policy, and regulation,” Powell stated during an economic event at the Chicago Booth School of Business of the University of Chicago. “There is a high level of uncertainty surrounding these changes and their potential impacts.”
The surge in spending plans in Europe, particularly in Germany, has propelled the euro to its most successful week since 2009, with the European currency climbing nearly 5%, in stark contrast to the situation in America.
The significant fiscal shift in Germany has boosted growth outlooks in the eurozone amid growing worries about US economic prospects, according to Lee Ferridge, a strategist at State Street, as reported by Bloomberg.
What does reality look like?
The actual value has been affected by the negative situation in the US, causing a 2.13% drop in the dollar’s value against the real this week. Nonetheless, the 0.57% rise in the dollar’s value today indicates unique factors at play.
Local investors focused on the fiscal scenario despite ignoring the external situation, reacting to the federal government’s announcement of a plan to lower food prices, which raised concerns about the tax implications.
Vice President Geraldo Alckmin stated that the government will address the meat import tax and other items in efforts to lower food costs.
He mentioned that the choice is part of an initial group of actions, which also involve regulating the import tariffs on coffee, sugar, and corn, among others.
Fernando Bergallo, director of FB Capital operations for Reuters, pointed out the fiscal risk concerning government spending aimed at controlling food inflation and other expenses affecting public accounts.
Bergallo emphasized the decrease in the dollar’s value in Brazil compared to the end of the previous year due to a correction that took place at the beginning of 2025, potentially leading to a stronger real amidst global uncertainties.
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