The dollar is falling amid Trump’s statements: what’s happening to the exchange rate
10 March 15:12
The official dollar exchange rate in Ukraine has fallen by more than a hryvnia since the beginning of January to UAH 41.21. On the cash market, the drop is even more significant: the exchange rate dropped by UAH 1.5, from UAH 43 to UAH 41.5. One of the reasons for this dynamic was the recent statements by US President Donald Trump that affected global financial markets. How exactly this affects exchange rates and to what minimum the dollar can fall, Komersant ukrainskyi analyzed together with economist Oleg Pendzin.
How Trump’s statements affect the dollar
Any statements made by politicians, especially those as influential as Donald Trump, have a significant impact on financial markets. Economist Oleg Pendzin explains:
“When we talk about the dollar in the global market, we must understand that any currency market is very emotional. Any emotions associated with statements definitely affect the exchange rate dynamics. And as soon as Trump begins to introduce, even as soon as he promises to introduce any customs restrictions, it immediately causes the stock market to fall, and the currency market immediately begins to fall behind the stock market.”
This is especially noticeable in the euro-dollar currency pair, where the exchange rate can change dramatically due to geopolitical risks and US political decisions.
“That is how it works. That is, when we are talking about the euro-dollar pair, there is actually an extremely high dependence on Trump’s statements,” Penzin explained.
Hryvnia and dollar: how the Ukrainian market reacts
Despite the global trends, the hryvnia/dollar exchange rate is determined by internal factors, not by statements of American politicians. As Oleg Pendzin notes:
“When we talk about the dollar-hryvnia pair, the situation is completely different. Why? Because the euro-dollar is a pair of two reserve currencies. And when we talk about the hryvnia-dollar pair, the situation is fundamentally different. Please excuse me, but this is our internal issue. Trump’s statements have no influence here.”
In other words, if the dollar is falling in value globally due to political instability, this does not mean that the hryvnia-dollar exchange rate will change in the same direction.
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“We are looking more at the situation at the frontline, we are looking at the state of foreign currency support for certain of our budget programs. We are looking at a lot of things that are actually more internal issues,” the expert said.
According to him, the hryvnia exchange rate is more influenced by the state of the frontline, the currency support of budget programs and domestic monetary policy.
As an example, Pendzin cites the decision of the National Bank of Ukraine to raise the discount rate:
“Moreover, I can say that this increase in the discount rate of the National Bank of Ukraine led to the strengthening of the hryvnia against the dollar simply because we have less hryvnia in circulation. And if there is less hryvnia in circulation, there is less demand for the dollar. And so, please, we have a strengthening. To summarize: when we talk about the euro-dollar pair, these are definitely Trump’s statements. When we talk about the hryvnia-dollar pair, these are our internal processes.”
To what minimum can the dollar fall
The question of the minimum dollar to euro exchange rate remains open. According to Oleg Pendzin, it is difficult to predict the exact minimum because of the inconsistency of the US politician’s actions.
“So far, everything Trump has done has been to the detriment of the US economy. And the markets are reacting appropriately. On the one hand, he promised to impose systemic sanctions, systemic duties on Canada. Now, a huge number of commodity items have been canceled simply because it hit American car manufacturers…” he notes.
The economist calls Trump a “man of emotions“ whose actions are difficult to predict. Penzin adds that Trump’s current policies have already dealt a significant blow to the US economy.
“He is an extremely inconsistent person. He is a man of emotion. And to foresee any, excuse me, conscious actions at this point in time, so far… I don’t want to say anything about the choice of the American people, but they have shot themselves in the knee so badly that I don’t even know how to comment on it,“ the economist emphasized.
