Increased Market Volatility Ahead

Investors globally are being advised to prepare for heightened market volatility as trade tensions under U.S. President Donald Trump might evolve into currency wars. Nigel Green, CEO of deVere Group, a leading financial advisory firm, has pointed out that the shift from trade disputes to currency conflicts presents an underappreciated risk that could significantly impact global markets.

Green noted that during Trump’s prior term, dissatisfaction with a robust U.S. dollar and claims against key trading partners, including Europe and China, for currency manipulation characterized the administration's approach. With Trump potentially returning to office, similar policies could lead to retaliation from other nations.

The cautious stance of the Federal Reserve on interest rates, coupled with a positive U.S. growth outlook, has contributed to a stronger dollar. However, this dollar strength might prompt the Trump administration to push trading partners to devalue their currencies in response to tariffs, maintaining U.S. export competitiveness.

Central banks in Europe and China are already adjusting to their economic situations, with the U.S. facing inflation and growth challenges, while Europe struggles to avoid stagnation and deflation. The European Central Bank (ECB) is expected to keep lower interest rates for an extended period, further weakening the euro against the dollar.

The looming threat of substantial U.S. tariffs has stirred worries over the growth prospects for trading partners such as Europe and China. In response, these regions may adopt more aggressive monetary policies to boost their economies, leading to possible currency devaluation. China might employ the renminbi to mitigate tariff impacts, while Europe could see deposit rates dip further into negative territory to stave off recession.

Green cautions that the interactions between trade policies and currency valuations could trigger a chaotic cycle of tariffs and retaliatory devaluations, resulting in inflationary pressures in the U.S., disruptions to global supply chains, and effects on risk-sensitive currencies.

In conclusion, Green underscores that Trump’s policies are likely to yield both winners and losers in the market, with the trajectory of the dollar being a pivotal factor to monitor. He advises investors to brace for potential fallout from trade and currency conflicts to navigate what may become a highly volatile market environment.

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