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The Impact of Trump's Tariff Pledge on Currencies and Cryptocurrencies

2024-11-26

President-elect Donald Trump's decision to impose tariffs on products from Canada, Mexico, and China has sent shockwaves through the global currency markets. On Tuesday, these currencies saw a decline against the dollar, reigniting fears of trade wars and adding to the uncertainty in other currency pairs. This move by Trump has not only affected the value of major currencies but has also had an impact on cryptocurrencies like bitcoin.

Tariff Details and Their Immediate Effects

Trump stated that on his first day in office, a 25% tariff would be imposed on all products from Mexico and Canada. Additionally, for China, he proposed an additional 10% tariff on all their products entering the United States due to concerns over the export of ingredients used in illicit drugs. These announcements had an immediate impact on the currencies. The dollar initially jumped more than 2% against the peso and was last up 1.57% at 20.5992 pesos. It also hit a 4-1/2-year high against its Canadian counterpart, rising more than 1.5%, and was last up 0.69% at C$1.4082. Against China's yuan, the U.S. currency rose to its highest since July 30 and was trading at 7.26 yuan.Trading was thin ahead of Thursday's U.S. Thanksgiving holiday, which spills into Friday, and many traders took the opportunity to take off. This lack of trading activity may have contributed to the initial volatility but also left the markets vulnerable to further fluctuations.Juan Perez, director of trading at Monex USA in Washington, DC, noted that while the full impact of the tariff announcements may not be felt immediately due to the holiday week, the peso is particularly vulnerable to falling into multi-year lows against the US dollar.Jane Foley, head of FX strategy at Rabobank, emphasized the unpredictability of the situation. She said, "We had a perfect example last night of why volatility is more likely under Trump. He can just put out a comment like that outside of usual U.S. market hours that takes people by surprise. It leaves investors scrambling to work out what this really means."

Defense of the Dollar After Trump's Announcement

After Trump's announcement on Friday that hedge fund manager Scott Bessent would become U.S. Treasury Secretary, the dollar was a bit on the defensive. This announcement buoyed government bonds and sent yields lower. As a result, the dollar was last down 0.38% at 153.63 yen while the euro was up 0.05% at $1.0499. The dollar index was at 106.89, versus 106.86 late Monday.Perez further explained that the tariff news has helped the yen as a safe haven. He said, "Any type of turbulence and turmoil that may be thrown in the way of China is not necessarily always going to be a benefit for Japan, but it opens room for Japan to negotiate more of a place of leadership once again in Asia."

Impact on Other Currencies and Cryptocurrencies

The Australian dollar sank to a more than three-month low of $0.6434 in early Asian trading and was last down just 0.57% at $0.6465. Given that China is Australia's biggest trading partner, the Aussie is often seen as a liquid proxy for the yuan.In the cryptocurrency market, bitcoin was trading at $93,334, well below the record high of $99,830 it touched last week. Bitcoin saw profit-taking ahead of the symbolic $100,000 barrier as investors expected Trump to loosen the regulatory environment for cryptocurrencies. Since the U.S. election, bitcoin has climbed more than 40%.Erik Nelson, macro strategist at Wells Fargo, noted that some investors may have been buying the euro to close their previous bets against the euro-Canadian dollar currency pair. Some had seen this as a "Trump trade" in the belief that Europe would be hit harder by tariffs than Canada.Scheduled news this week is on the light side, with the main events being the minutes from the Federal Open Market Committee's November meeting due at 2 p.m. EST/1900 GMT and on Wednesday the October Personal Consumption Expenditures price index. These events will likely provide further insights into the economic outlook and could influence currency and cryptocurrency markets.

Puerto Vallarta, a vibrant city in Mexico, has witnessed a notable event in the financial arena. The Mexican peso, a key currency in the region, faced a substantial depreciation on Tuesday. This development has placed it at the forefront as the most affected currency when compared to major global peers against the U.S. dollar.

Unraveling the Impact of the Mexican Peso's Depreciation

The Currency's Plunge

The Mexican peso experienced a sharp decline on Tuesday. It weakened by a significant 2 percent, which is equivalent to 40.61 cents. In spot markets, the peso closed the day at 20.6894 pesos per dollar. This marked a disheartening turn for the currency, as it represented its worst performance in over two years. Such a significant drop reflects the escalating financial pressures and the prevailing geopolitical uncertainty that have cast a shadow over the currency's stability.

The depreciation of the Mexican peso is not a sudden occurrence. It is a result of a complex interplay of various factors. Geopolitical tensions in the region and global economic uncertainties have combined to create an environment where the peso has come under intense pressure. These factors have led to a loss of confidence in the currency, causing investors to withdraw their funds and seek safer havens.

Moreover, the economic conditions within Mexico have also played a role in the peso's depreciation. Inflationary pressures, along with challenges in the country's trade balance, have added to the downward pressure on the currency. These issues have made it difficult for the Mexican peso to maintain its value against the U.S. dollar.

Implications for the Economy

The significant depreciation of the Mexican peso has far-reaching implications for the country's economy. One of the immediate effects is an increase in the cost of imports. As the peso weakens, the price of goods and services imported from other countries rises. This can lead to higher inflation rates and put a strain on consumers' purchasing power.

Businesses that rely on imported inputs also face challenges. The increased cost of imports can eat into their profit margins and make it more difficult for them to compete in the global market. This may lead to a slowdown in economic growth and job losses in certain sectors.

On the other hand, a weaker peso can also have some positive effects. It makes exports more competitive as they become relatively cheaper for foreign buyers. This can boost the country's export sector and help to stimulate economic growth. However, the overall impact depends on various factors such as the elasticity of demand for Mexican exports and the ability of domestic industries to adapt to the changing economic conditions.

Government Response and Outlook

The Mexican government has been closely monitoring the situation and has taken steps to address the depreciation of the peso. These measures include interventions in the foreign exchange market and policy adjustments to stabilize the currency.

The government is also working on implementing structural reforms to improve the country's economic fundamentals and enhance its resilience to external shocks. These reforms aim to address the underlying issues that have contributed to the peso's depreciation and promote long-term economic stability.

Looking ahead, the outlook for the Mexican peso remains uncertain. Geopolitical tensions and global economic conditions continue to pose risks to the currency. However, with the government's efforts and the implementation of appropriate policies, there is hope that the peso can regain some of its lost ground and stabilize in the coming months. The key will be to address the root causes of the depreciation and ensure a sustainable economic recovery.

Bitcoin has made significant inroads globally, with countries like El Salvador adopting it as legal tender and the U.S. considering it for a national strategic reserve. Now, Suriname is also on the Bitcoin bandwagon. Maya Parbhoe, a Surinamese young lady running for president, is championing the use of Bitcoin for the national currency and aims to implement the Bitcoin standard if elected, along with ending the systematic corruption regime.

Bitcoin's Global Impact: Suriname's Presidential Aspirant Leads the Way

El Salvador's Bitcoin Adoption and Its Global Ripple Effect

Since El Salvador took the bold step of making Bitcoin legal tender, its influence has spread far and wide. This move not only showcased the potential of Bitcoin on a national scale but also inspired other countries to explore its possibilities. It became a catalyst for change, demonstrating that Bitcoin could play a significant role in the economic and financial landscapes of different nations.Bitcoin's acceptance in El Salvador led to increased global awareness and interest. It opened up discussions about the future of currency and the potential benefits of digital assets. Many countries started to closely monitor the situation and consider their own strategies regarding Bitcoin. This ripple effect is still being felt today, as more and more nations are evaluating the merits and risks of integrating Bitcoin into their economies.

Maya Parbhoe's Vision for Suriname and Bitcoin

Maya Parbhoe, a Surinamese presidential candidate, is at the forefront of embracing Bitcoin in her country. She recognizes the power of Bitcoin in transforming Suriname's economic landscape. By advocating for the use of Bitcoin as the national currency and implementing the Bitcoin standard, she aims to bring about a new era of economic stability and independence.If elected, Maya plans to take decisive actions to end the systematic corruption that has plagued Suriname. Bitcoin, with its transparent and decentralized nature, offers a potential solution to this long-standing issue. It can provide a more secure and efficient financial system, free from the influence of corrupt practices. Maya's vision is not only about adopting Bitcoin but also about using it as a tool to build a stronger and more prosperous Suriname.

Economic Developments with Bitcoin in Suriname

Maya's economic agenda includes building the first blockchain-based capital market in the world. This innovative approach has the potential to attract significant investments and drive economic growth. By financing Bitcoin bonds, Suriname can tap into the global cryptocurrency market and leverage the benefits of blockchain technology.In addition to the capital market, Maya is focused on addressing the inflation issues faced by Suriname. The Suriname dollar (SRD) has experienced significant inflation in the past few years, but with the introduction of Bitcoin and free currency competition, there is hope for a more stable economic environment. By providing alternative options and promoting competition, Suriname can work towards controlling inflation and boosting economic stability.

Poland's Bitcoin Move and International Comparisons

Poland is also following in the footsteps of other nations by embracing Bitcoin. Slawomir Mentzen, the chairman of the right-wing Polish political party New Hope, introduced the idea of a Bitcoin strategic reserve for running the presidential ticket. This shows the growing recognition of Bitcoin's potential in different parts of the world.Mentzen's earlier proposal of mining Bitcoin in municipal schools and offices may have seemed absurd at the time, but it reflects the evolving attitudes towards Bitcoin. Now, as he runs for president and advocates for keeping currency reserves in Bitcoins, it highlights the changing dynamics of the global financial landscape.Comparisons between Suriname and other countries that have embraced Bitcoin reveal the diverse paths and strategies. Each nation is finding its own way to integrate Bitcoin into its economic and political systems, based on its unique circumstances and goals. This global movement towards Bitcoin is a testament to its growing importance and the potential it holds for the future.