By Nikhil Dedha, New Delhi, July 8
As global trade tensions rise with the return of high tariffs under US President Donald Trump's policy, questions are being raised on whether countries affected by these tariffs will sell off their dollar-denominated assets to manage the financial burden.
However, experts with whom ANI spoke believe such a move is unlikely and that the US dollar will continue to hold its ground.
Banking and market expert Ajay Bagga told ANI that there is no direct link between tariffs and a large-scale sell-off of dollar assets.
"No such direct correlation is there. The de-dollarisation move is still very tepid. So we don't anticipate that. However, one of Trump's objectives is to weaken the US dollar. The huge debt, the huge interest payout on this debt, the continued high fiscal deficit and the anticipated Fed rate cuts will all weaken the US dollar," Bagga said.
He added that while gold might replace the US dollar to a limited extent in global reserves, it is unlikely to be a major reason for a weaker dollar.
Sonal Badhan, Economics Specialist at Bank of Baroda, also echoed similar views. Speaking to ANI, she said, "It is unlikely that there will a major sell-off in dollar-denominated assets. Dollar is likely to hold ground instead as uncertainty around tariffs further increases the possibility of delayed Fed rate cuts."
She also pointed out that the higher tariffs on Japan and their impact on its exports could reduce demand for the Japanese yen, which is seen as an alternate safe haven currency.
"Fluidity of the new deadline and the possibility of negotiation with major trading partners like the EU and India may help ease some trade-related concerns, which in turn will lead to improvement in risk sentiment and dollar may ease," Badhan added.
However, currency expert KN Dey shared a more balanced view with ANI. "The US dollar is currently under pressure from both sides. On one hand, it is weak due to concerns about the US economy's growth and the risk of rising inflation. This uncertainty has kept the dollar on the back foot," he said.
"However, there's also a possibility of the dollar strengthening in the coming months. That's because countries that trade with the US might let their own currencies weaken to make their exports more competitive in the American market. For example, a stronger euro may not help the European economy, as it makes their exports more expensive."
Experts agree that while the dollar may remain under pressure in the short term, any significant fall is unlikely as global market dynamics continue to support its role as a primary reserve currency.
- ANI
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