Why the US dollar is getting stronger

Most economists expect Trump's proposed tariffs to push up its value

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As the polls and prediction markets showed Donald Trump looking more likely to return to the White House, the value of the dollar began to rise. When the result became clear, it soared.

The day after the election, the dollar rose the most it had in years against a basket of other major currencies. And it has continued to rise, hitting a fresh high for the year on Nov 13, as economists and traders considered the policies proposed by the President-elect and revised their forecasts for the world's dominant currency.

Such strength is a sharp shift from three months of sustained weakening, with the dollar hitting its low point for the year at the end of September.

Sharp moves in the value of the dollar can have a destabilizing effect on the global economy, because the US currency is on one side of nearly 90 per cent of all foreign exchange transactions. Essential commodities, like oil, are typically priced in dollars.

A stronger dollar makes it cheaper for Americans to buy foreign goods and to travel abroad, but US companies that export products may become less competitive. Outside the United States, a strengthening dollar stokes inflation in countries with weaker currencies and makes it harder to pay debts denominated in dollars, weighing on the global economy.

WHY DOES THE DOLLAR KEEP GETTING STRONGER?

The recent rise may seem curious, because Trump has often said that, for the sake of US exports, he would prefer to see the dollar weaken. But his plans to impose tariffs on imports and cut taxes, among other actions, are expected by most economists to do the opposite.