As the U.S. dollar scaled a fresh 52-week high on Friday morning at 108.071 level, former Goldman Sachs FX strategist and senior fellow at Brookings Institution, Robin Brooks said in an X (formerly Twitter) post that, “Markets initially got this wrong, driving stocks up sharply right after Nov. 5.”
He added that “the prospect of tariffs isn’t obviously good for equities, while it’s clearly good for the Dollar. More Dollar strength is coming.”
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What Happened: A chart shared by Brooks compared the S&P 500 Index and the Dollar Index during President-elect Donald Trump’s victory in 2016 and 2024. Measuring the performance of both indices from the day of the election on Nov. 5, the Dollar Index has risen by approximately 3.5%, outperforming the S&P 500 Index, which advanced 2.9%.
Why It Matters: An increase in tariffs reduces the demand for imported goods and lifts domestic prices above the free trade price, gradually stoking inflation. This results in monetary tightening affecting the equities in the long run.
However, higher tariffs are positive for the domestic currency as its supply decreases and more money flows into the economy.
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What Are Other Analysts Saying: Now that the Dollar Index has surpassed its previous 52-week high of 107.07, “a break of it may let it test 108.60 while 105.10 acting as a support,” said Kunal Sodhani, vice president of the global trading center at Shinhan Bank.
According to him, “the ongoing geopolitical tensions in the Middle East combined with the strong U.S. economic data and the Federal Reserve's cautious rhetoric on interest rate cuts, may push the U.S. Dollar to new highs”
As of Friday, the SPDR S&P 500 ETF Trust SPY had gained 25.60% year-to-date, while the Invesco QQQ Trust, Series 1 QQQ saw a 25.43% increase, according to Benzinga Pro. Despite these strong returns, both ETFs were slightly down in pre-market trading on Friday.
Meanwhile, the futures show a decline across major indices: Nasdaq 100 down 0.51%, S&P 500 down 0.40%, Dow Jones down 0.29%, and R2K down 0.08%.
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