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Trump's protectionist rhetoric pulls down dollar and global stock markets


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Trump's protectionist rhetoric pulls down dollar and global stock markets

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The US dollar steadied on Tuesday after falling to a seven-week low against other major currencies on Monday, the first day the financial markets were open after Donald Trump was sworn in as president.

Share indexes around the world declined on Monday with investors concerned over his protectionist rhetoric. They moved their money to safe havens, like government bonds and gold, which rose for the third straight day to reach a two-month high.

In Europe, banks and energy companies were the biggest losers on Monday.

Robert Halver, head of market research for Baader Bank in Frankfurt, said we should get used to it: “Share prices will be more volatile, on the basis of daily 140-letter tweets with significant content. What’s interesting is the possibility of new trade agreements, for example with Britain, as Theresa May will be in the US in the next days and she’ll be the first leader to see Mr Trump personally.”

As Trump signed an executive order formally withdrawing the United States from the 12-nation Trans-Pacific Partnership trade deal the markets waited for the next pronouncements.

Chris Beauchamp, market analyst with IG, said there are many unanswered questions: “How far will he go in unraveling NAFTA (the North American Free Trade Agreement), how far will he go in combating China, declaring China a currency manipulator, as they promised on the campaign trail. How will this play out with the UK’s relationship with the EU, with of course the UK being promised a trade deal. We’ve got the meeting between the prime minister and the president on Friday, a very big coup there for the UK government, but these are the key things that will unnerve markets really. Certainly in risk assets, we’ve seen the U.S. dollar fall too. And there is the other big question, how will his strong America first rhetoric play with a rising US dollar?”

A top Trump adviser will meet this week with advisers to Canadian Prime Minister Justin Trudeau, whose Liberal government is gathering to plan a response to a possible renegotiation of the North American Free Trade Agreement.

Mexico is ready to renegotiate trade rules with the United States but says it would counter any change in US policy that affects imports with a “mirror action.”

Fears of a protectionist White House, and no details so far on proposed tax cuts, infrastructure spending and deregulation, have some investors reassessing how pro-growth this administration might be for the US economy.

World stocks had hit multi-year highs earlier this month on expectations Trump would boost growth and inflation with extraordinary fiscal spending measures.

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