Donald Trump’s protectionist policies inspire US dollar and stocks to drop in value

The dollar fell to near a seven-week low against Japan’s yen on Monday

On Sunday, the new President said that he plans to renegotiate the North American Free Trade Agreement (NAFTA) (Win McNamee/Getty)

The dollar and major stock indexes slipped on Monday, after US President Donald Trump used his inaugural address on Friday to underscore his protectionist agenda, unnerving some investors who had hoped for a more conciliatory tone.

In Asia, the Nikkei stock index ended the trading session more than 1 per cent lower and shares across Europe largely fell too. The FTSE 100 ended the day down around 0.7 per cent, according to Thomson Reuters.

The US dollar, which had been sent on a wild ride in the lead-up to the inauguration, fell against a slew of currencies, closing in on a seven-week low hit against Japan’s yen on Wednesday last week. The euro and the pound were up around 0.3 per cent and 0.9 per cent against the dollar on Monday evening in London respectively.

“Our take on Mr Donald Trump’s inauguration address on Friday is that it appeared combative, protectionist and divisive in many respects,” economists at UniCredit wrote in a research note. “Consequently, we think that the downward trend in the [dollar] that has recently emerged is likely to extend further.”

In Friday’s address Mr Trump stressed his ambition to put "America first", and highlighted his two rules of “buy American and hire American”.

Currency strategists at Morgan Stanley wrote in a note that Mr Trump's inauguration speech "was a repeat of election pledges but failed to reach out to local political opponents and international partners". It's that, they said, that is causing the dollar to weaken.

On Sunday, the new President also said that he plans to renegotiate the North American Free Trade Agreement (NAFTA).

"The market is getting nervous about the possibility that the world's trade might shrink," Reuters quoted Koichi Yoshikawa, executive director of financial markets at Standard Chartered Bank in Tokyo, as saying.

In the aftermath of Mr Trump’s November election victory, stock markets -- especially in the US -- surged, spurred by the New York businessman’s campaign promises of tax and regulatory roll backs and higher infrastructure spending.

Bank stocks enjoyed especially sharp rises and the dollar rallied hard too, but in recent weeks moves have become more muted. Investors appear to be looking for proof that the rallies will be justified by hard policy action from the President.