Dollar Surge Sparks Valuation Concerns Amid Trump’s Trade Tariff Threats

The U.S. dollar’s rally has entered “overstretched territory,” analysts at UBS warned on Monday, following a sharp rise in the dollar index (DXY) driven by geopolitical tensions and economic policy statements from President-elect Donald Trump.

Key Developments

1. Dollar Index Climbs:

The DXY index surged 0.5%, crossing 106 points after Trump threatened to impose 100% import tariffs on BRICS nations unless they abandoned efforts to develop a joint currency or alternatives to the U.S. dollar in trade.

2. Trump’s Statement Fuels Volatility:

Trump emphasized his opposition to de-dollarization efforts in a social media post, stating, “The idea that the BRICS countries are trying to move away from the dollar while we stand by and watch is OVER.”

The statement caused modest declines in the Chinese yuan, Indian rupee, and South African rand.

3. Dollar Dominance:

Despite ongoing de-dollarization talks, the greenback remains the world’s dominant currency:

Used in 47% of global payments.

Accounts for 88% of all forex trades.

Maintains unparalleled liquidity and market influence.

4. Investment Strategy Shift:

UBS analysts noted that while the dollar’s position as the world’s “king currency” remains unchallenged, its current valuation appears stretched.

They advised investors to take advantage of periods of dollar strength to reduce USD exposure.

Outlook

The dollar’s near-term trajectory appears robust, supported by safe-haven demand and its entrenched dominance in global financial systems. However, long-term stability may face headwinds from international diversification away from the greenback, requiring careful navigation by investors and policymakers alike.