US Dollar Weakness: The US dollar is unusually weak during a period of stock market decline, failing to act as a typical safe haven. This is attributed to President Donald Trump’s policies, including escalating tariffs and a move away from globalization, which are shaking confidence in the US currency. The dollar has fallen against most major currencies, leading to its worst start to a year since 2017. Some analysts suggest the dollar is now the “opposite” of a bastion of stability.
Impact of Trump’s Policies: Trump’s trade policies and isolationist agenda are raising concerns about the long-term value of the dollar and could accelerate a trend of “de-dollarisation”. While theoretically, tariffs should strengthen a currency, in this case, they are causing depreciation due to the risk of reigniting inflation and slowing economic growth. Speculative traders began betting against the dollar for the first time since Trump’s election, fearing his policies could cause a recession.
Gold as a Safe Haven: As the dollar weakens, gold has surged to record highs, acting as a primary safe haven for investors. This rally is fueled by market volatility and geopolitical tensions.
De-dollarization Discussions: Trump’s actions are renewing discussions about countries seeking to lessen their reliance on the US dollar. European leaders see an opportunity to strengthen the euro’s role.
US Economic Impact: US stock markets have declined due to concerns about the economy and the potential impact of tariffs. Despite the dollar’s recent drop, it remains the world’s key currency due to the size and liquidity of the US debt market, and the lack of a significant alternative. However, the possibility of the dollar losing its safe-haven status is being acknowledged.
South Africa’s Economic Considerations:
South Africa’s central bank governor suggests its inflation targeting regime might be outdated and hindering faster growth. Discussions are underway regarding an optimal inflation target.
The South African rand weakened due to US dollar strength and uncertainty surrounding the impact of the evolving trade war.
Consumer confidence in South Africa experienced a significant drop, partly attributed to concerns about potential tax increases and worsened relations between South Africa and the United States.
Producer price inflation in South Africa has eased, but concerns remain about rising electricity and water costs and the potential impact of the trade war on food prices.
While the leading business cycle indicator in South Africa showed a slight increase, the continued weakness in manufacturing is a concern.
European Economic Developments: European inflation data was lower than expected, increasing bets on European Central Bank rate cuts, while economic indicators in France and Germany showed some weakness. Germany’s increased spending on defence has contributed to a stronger euro earlier in the month.
Upcoming US Tariffs: Markets are closely watching the upcoming April 2nd deadline when President Trump is expected to announce further “reciprocal tariffs” on major trading partners, creating uncertainty and driving market volatility. The recent announcement of a 25% tariff on imported cars has already contributed to trade concerns.
Investor Sentiment: There are signs of increased risk aversion among global investors due to the auto tariff announcements and anticipation of further tariffs, leading to safe-haven buying of assets like gold and the Japanese yen.
