Trump’s tariffs were expected to boost the dollar, but recession fears are dragging it down

The Wall Street conventional wisdom in November was that President-elect Donald Trump’s tariff plans would boost the U.S. dollar. Instead, with the tariffs in place, worries about an impending recession have overwhelmed any positive benefit for the greenback.

The ICE U.S. Dollar Index traded as high as 104.31 on Wednesday, before Trump’s tariffs were unveiled. It fell following the announcement and hit a low of 101.27 on Thursday, a 3% swing in roughly 24 hours. Even with a modest rebound on Friday, the index finished down for the week and the dollar is now weaker than it was before the presidential election in November.

“The blowback from Trump’s tariffs are already kind of hitting the U.S. economy, and that’s not what investors were expecting,” said Chris Turner, global head of markets at ING. “Investors were expecting that tariffs would be bullish for the dollar and bad for the rest of the world. But I think the U.S. economy wasn’t in a strong enough position to take these maximum tariffs right now.”

While Trump has at different times spoken favorably of both a strong and a weak dollar, traders clearly took his election as a boost to the greenback. The dollar index rallied sharply following Trump’s win on Nov. 5 and then continued to climb over the next two months, briefly trading above 110 in mid-January.

Since then, the index has been retreating amid growing signs of economic weakness in the U.S. and as Trump’s trade policies proved more aggressive than Wall Street bargained for.

Kathy Kriskey, head of alternatives ETF strategy at Invesco, is still hopeful for a “short-term pain, long-term gain” outcome from the Trump administration’s economic plan, but says market confidence is shaken.

“The currency reflects the health of the economy, and so I think that right now we are very concerned. We sort of believe Trump has a plan but we don’t know, definitively, what that plan is,” Kriskey said.