The top chart (below) shows the relationship between the US Dollar Index and the 10-year US Treasury note yield. Note that the Trump 1.0 tariff initiative dates are marked, and so are the Trump 2.0 Liberation Day dates.
The second chart uses Bloomberg data and was inserted into John Authers’ column this morning (November 3). John Authers asks if the period of a weak US dollar versus Rest of World is coming to an end. The question is a fair one.
So, will history repeat itself?
In the first (Trump 1.0) round of the tariff wars, the sentiment shifted to extreme against the dollar after the dollar weakened about 10% or so. Then the market surprised the pessimists by reversing. Note on the chart that we have marked the intervening COVID period that featured very low policy interest rates worldwide as national central banks eased vigorously to offset the economic fallout from COVID.
Post-COVID, we again see the dollar pattern repeating with Trump 2.0 tariff wars. If history is a guide, the answer to John Authers’ question will be yes. Those who are betting on a weakening dollar may be facing a headwind.
Here are the two charts.
