Currency Lessons from a Week of Trump

It has been more than a week since Donald Trump took office as president of the United States. A row with Colombia and a turbulent period on international stock exchanges are a foretaste of what could happen in the area of ​​currencies during his reign.

Traders in the currency markets – and in the rest of the financial world – have been anxiously awaiting the inauguration of Donald Trump. Would he immediately implement the tough trade measures he hinted at? Or would he mainly flex his muscles to get leaders of other countries to the negotiating table quickly? It may be a bit short to take stock after a week in the White House, but the way in which a minor row with Colombia arose and was also quickly extinguished suggests that the latter option is the most likely.

Trouble with Colombia
The South American country rejected two planes carrying Colombian migrants that were being sent back by the United States over the weekend. President Gustavo Petro was furious because this happened on military planes instead of civilian planes. After the rejection, Trump banned the embassy in Bogota from processing new visa applications and threatened to impose a 25% tariff on goods and services from Colombia. Despite Petro's remark that he "doesn't do business with white slave drivers," an agreement to send back the migrants was reached within a day. The unrest has also had an impact on currency markets. The Colombian peso fell by 2% within a day.

Price turbulence
The first currency lesson after a week of Trump is that a commotion can have a significant impact on the exchange rate. In this respect, the Mexican peso and the Canadian dollar seem particularly vulnerable. Reportedly, a levy on goods from these countries could be introduced as early as February 1. A second currency lesson is that the dollar is less untouchable than recent months have suggested. The currency took a step back when international stock markets started the week quite turbulently. After the news that the Chinese DeepSeek has developed a model for artificial intelligence that requires little computing power, the shares of chip manufacturers fell sharply. The dollar is usually quite popular during exchange rate turbulence.

wild ride
In recent days, however, currency traders have mainly sought cover in the Swiss franc and Japanese yen. The latter currency also had the wind in its sails from an interest rate hike by the Bank of Japan. Incidentally, the Federal Reserve is meeting today to decide on the US policy rate. It would be a huge surprise if the current rate were to be adjusted. And that would undoubtedly provoke an angry reaction from Trump, who would prefer to see interest rates fall sharply so that the economy can grow a little faster again. All in all, the currency market can prepare for a somewhat wilder ride than during the presidency of Joe Biden.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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