Other things being equal, tariffs tend to drive up the currency of the country in question. (I believe that's the reverse of the desire of the current US administration, but that's not my department)

Other things are never equal, of course, but the generally accepted logic is fairly simple: to buy non-US stuff, the American consumer must come up with (purchase) some foreign currency to pay for it. (it doesn't matter if the payment is made in dollars or invoiced in dollars--the seller in Europe or wherever will immediately sell the dollars to obtain local currency, which amounts to the same thing). Tariffs cause local prices to rise, which causes import purchase volumes to fall (the purpose of the exercise), which means that American purchaser is not buying and creating as much demand for the non-US currency in question. By reducing the relative demand of the non-US currencies, they fall against the dollar. Or, viewed more simply, the tariffing country's currency rises.

So much, so textbook. This would not happen until the tariffs are in place and starting to affect purchasing behaviour, but that's the traditional expectation.

But...there are other moving pieces. One of the pachyderms in the room is the US current account deficit, which is not unrelated to the larger US budget deficit.

The chief economist of Goldman recently wrote in the Financial Times that, despite currencies being notoriously hard to predict, he expects further dollar weakness. One core bit of his reasoning seems pretty compelling. It doesn't require non-US folks to actually sell any US assets, as...

"...even reluctance by non-US investors to add to their US portfolios will probably weigh on the dollar. This is because balance of payments accounting implies that the US current account deficit of $1.1tn must be financed via a net capital inflow of $1.1tn per year. In theory, this could come via foreign purchases of US portfolio assets, foreign direct investment in the US, or US sales of foreign assets. In practice, however, most swings in the US current account balance correspond to swings in foreign purchases of US portfolio assets. If non-US investors don’t want to buy more US assets at their current prices, those prices must fall, the dollar must weaken, or (most likely) both."

Probably paywalled
Financial Times: Content 976e2798 f9db 46c6 9582 fe237c572f28

Jim