Experts Predict US Dollar Resilience Amid Trade Tensions

Global trade tensions are escalating due to the reintroduction of high tariffs under US President Donald Trump's policies. This has sparked speculation about whether countries affected by these tariffs will sell off their dollar-denominated assets to mitigate the financial strain.

However, experts consulted believe that such a large-scale sell-off is improbable, and the US dollar is expected to maintain its strength. Ajay Bagga, a banking and market expert, stated that there is no direct correlation between tariffs and a significant sell-off of dollar assets. He noted that the move towards de-dollarization is still in its early stages. Bagga also highlighted that while one of Trump's goals is to weaken the US dollar, factors such as substantial debt, high interest payments, a persistent fiscal deficit, and anticipated Federal Reserve rate cuts will contribute to its weakening.

Sonal Badhan, an Economics Specialist at Bank of Baroda, shared similar sentiments. She believes a major sell-off of dollar-denominated assets is unlikely. She anticipates the dollar will hold its ground, as uncertainty surrounding tariffs increases the possibility of delayed Fed rate cuts. Badhan also pointed out that higher tariffs on Japan and their impact on exports could reduce demand for the Japanese yen, which is considered an alternative safe haven currency. She added that the flexibility of new deadlines and potential negotiations with major trading partners like the EU and India could alleviate trade-related concerns, improving risk sentiment and potentially easing the dollar's pressure.

Currency expert KN Dey offered a more nuanced perspective. He noted that the US dollar is currently facing pressure from multiple angles. It is weakened by concerns about the US economy's growth and the risk of rising inflation, which has kept the dollar under pressure. However, Dey also suggested the possibility of the dollar strengthening in the coming months. This is because countries trading with the US might allow their currencies to weaken to make their exports more competitive in the American market.