Here is a potential winner of Trump rates: American tourists traveling abroad

While economists are ringing alarm bells about the impact of President Donald Trump’s rate policy on consumers and the American economy, there is a group of Americans who can benefit: tourists traveling abroad.

This is due to the impact of rates on the US dollar and other global currencies. Economists expect that the rates imposed on foreign import will strengthen the US dollar and possibly weaken important currencies such as the euro.

In such a case, travelers would buy more abroad in 2025, economists said. Their dollar would extend further on purchases such as shelter, eating out and tours that are led to the local currency.

“Rates, everything else, are good for the US dollar,” said James Reilly, senior markets economist at Capital Economics.

The Nominal wide US Dollar Index In January the highest monthly level reached at least 2006. The index makes the power of the dollar against currencies of the most important trading partners of the US, such as the Euro, Canadian Dollar and Japanese Yen.

In the meantime, the Ice US Dollar Index (DXY) – another popular measure for the strength of the US Dollar – has risen more than 3% since the victory of Trump’s election day.

Trump has established a plan on Thursday to impose retaliation rates against trading partners on a national basis. Specific levies will depend on the outcome of an assessment of the trade department, which officials expect to be completed on 1 April.

In the meantime, Trump has imposed an extra rate of 10% on Chinese goods. A duty of 25% on all steel and aluminum imports will take effect on March 4.

The Canadian dollar offers a recent example of the potential impact of a rate, Reilly said.

On February 4, when the Canadian rates were set to come into force, the US dollar spiked At the highest level in at least a decade against the Canadian dollar, before he finally dropped when Trump postponed the tasks for a month.

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A trade war with China in 2018-19 during the first term of Trump also provides insight into the impact of rates on currency, JP Morgan Global Market Strategen written In October.

The Trump government has raised rates at around $ 370 billion in Chinese goods from an average of 3% to 19% in 2018-19, and China took revenge by raising rates on American exports from 7% to 21%, the JP Morgan wrote -Trookegen.

While other factors also influenced the currency movements, “the trade policy of uncertainty” the tendency to strengthen the dollar, “reported JP Morgan. The DXY index rose to 10% during rate announcement windows in 2018 and 4% in 2019, they wrote.

Rates – even the threat of them – can strengthen the dollar in a few ways compared to other currencies, Reilly explained.

An important way is through interest rates – in particular the difference between the interest rates of one nation and the other, he said.

Rates are generally considered an inflatory, because the import tasks are expected to increase consumer prices, at least in the short term, economists said.

The Federal Reserve would probably increase interest rates to maintain American inflation, which has not yet fallen back to the target level of the policy makers after rising in the pandemic era.

“We expect the USD [U.S. dollar] In order to stay strong in the short term, especially on the back of the US inflationary policy and in particular rates, the currency analysts of the Bank of America wrote in a note on Friday.

(Their analysis was of “G10” Nations: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the US)

Based on available information about Trump’s retribution plan, the average effective rate percentage for all American imports would now rise from less than 3% to around 20% – which would add about 2% to US consumer prices and temporarily increase inflation to 4% In 2025, Paul Ashworth, Chief North America Economist at Capital Economics, estimated Thursday.

On the other hand, the economies of other nations would probably suffer from the American taxes, Reilly said.

Take Europe, for example.

As a result, Europe would possibly export less to the US, which would have a negative influence on the European economy, he said. That would make it more likely for the European Central Bank to reduce interest rates to strengthen the economy, Reilly said.

A broader differential for interest rates would be the result of increased American interest rates and reduce European rates.

Such a dynamic would probably lead to investors moving money to American assets, also American treasury bond-bond to find a higher relative return, so that they sell euro-mixed assets in favor of dollar-mixed assets, Reilly said .

In this case, a higher demand for the US dollar and a lower demand for the euro can lead to a stronger dollar, he said.

The euro and the British pound Sterling are especially sensitive to such interest differences, while currencies on the emerging market are less, Reilly said.

Of course there is a lot of uncertainty about how the US would apply rates in other countries – and whether taxes that have been proposed would even come into force. Mountability rates of trading partners can bump into a run -up in the US dollar, economists said.

The dollar could weaken later in the year if the world takes revenge on the US and this trade policy “takes a toll from the American economy”, the analysts of Bank of America wrote.

Most investors indeed expect in the first or second quarter of the US dollar in the first or second quarter of 2025 – 45% and 24% respectively, according to a survey by the Bank of America, carried out from 7 February to 12 February (the poll was from 52 fund managers from the UK, Continental Europe, Asia and the US)

In general, however, most countries are more dependent on the US than the US for trade, Reilly said.

“So they can’t really take revenge to the same extent that the US can do,” he said.