After strong global growth bolstered markets in 2017, the U.S. has left other countries in the dust this year, leading investors to favor domestic stocks and the dollar. Optimism about the latest trade developments pulled the WSJ Dollar Index down from its 15-month high earlier this month, but the U.S. currency has since stabilized.
The dollar has risen in three straight sessions and added 0.2% Thursday after Bloomberg News reported that President Trump wants to impose $200 billion of tariffs on Chinese goods as early as next week.
Now, heading into the Friday deadline for the U.S. and Canada to reach a new trade agreement, some analysts are closely monitoring moves in the currency market, wary that more tariffs or delays could propel the dollar to new heights.
That could cause headaches for investors by making exports from large U.S. companies less valuable overseas and causing assets like commodities that are denominated in dollars to become more expensive for foreign buyers. Swings in emerging-market currencies have pushed up the dollar, which in turn makes it more difficult for developing nations to pay back dollar-denominated debt.
Those numerous connections to global markets and other asset classes put currencies at the center of trade-related market moves. They're also the main reason a sudden climb could portend further pressure on assets, from stocks around the world to commodities.
"It's the main thing we're monitoring from a risk standpoint," said John Toohey, head of equities at USAA Asset Management.
Investors seemed increasingly confident that the Trump administration and China will eventually compromise on trade ahead of planned November meetings.
A continued dollar rebound could indicate that belief is waning and dent recent enthusiasm for U.S. stocks.
Write to Amrith Ramkumar at firstname.lastname@example.org