Trade, Tariffs, and Global Tension
As we enter the month of February, the biggest news roiling the currency markets is the ongoing threat of U.S. tariffs being placed on Canada, Mexico, China, and even Europe, along with the possible response to such tariffs. U.S. tariffs generally raise prices for U.S. goods, leading to higher consumer prices. Higher domestic inflation can then lead to higher U.S. interest rates, as we have seen in recent years. It’s important to note that such an interest rate environment generally favors holding the U.S. dollar.
What you need to know
As I write this article, President Trump has agreed to pause his promised 25% tariffs on Canada and Mexico until early March in exchange for border security-related concessions. At the same time, China struck back against new U.S. tariffs with levies on certain American goods, an antitrust probe into Google, and restrictions on Chinese exports of key minerals.
Amid all this uncertainty, the value of the U.S. dollar has fluctuated. The initial threat of 25% tariffs on Canada and Mexico led to a stronger U.S. dollar, while headlines associated with decreased tariff tensions weakened the U.S. dollar.
What the market is telling us
The market consensus is that if the promised tariffs are actually implemented on Canada and Mexico, we will see a continuation of a stronger U.S. dollar. A stronger U.S. dollar can reduce expenses for Americans who pay international vendors in foreign currency.
As a result, Foreign Exchange clients can lock in advantageous rates by hedging their expenses. If clients are paying in U.S. dollars, there is an opportunity to renegotiate better pricing terms, including discounted invoicing.1
Old National is well equipped to help you with your Foreign Exchange needs. To learn more about your options, call 800-704-3084 or email FXSales@oldnational.com.
1 Applicable fees can include, but are not limited to, a fee for bank-initiated transactions, amendment fees, statement fees, and fees assessed by other financial institutions (“beneficiary and intermediary banks”). In addition to the wire transfer fee, Old National makes money when converting U.S. dollars to a foreign currency. Old National’s retail foreign exchange rates differ from other banks, foreign currency providers, and rates found elsewhere online. In addition to any applicable fees, Old National makes money when we convert one currency to another currency for you. The exchange rate used when Old National converts one currency to another is set at our sole discretion and includes a markup. The markup is designed to compensate us for several considerations including, without limitation, costs incurred, market risks, and a desired return. The applicable exchange rate does not include, and is separate from, any applicable fees. The exchange rate Old National provides to you may be different from exchange rates you see elsewhere. Different customers may receive different rates for transactions that are the same or similar, and the applicable exchange rate may be different for foreign currency cash, drafts, checks, or wire transfers. Foreign exchange markets are dynamic, and rates fluctuate over time based on market conditions, liquidity, and risks. Old National is your arms-length counterparty on foreign exchange transactions. Old National may refuse to process any request for a foreign exchange transaction.
