Investor Confidence Wavers as U.S. Trade War Escalates

Neel Kashkari, the President of the Minneapolis Federal Reserve, expressed concerns on Friday regarding a noticeable shift in investor sentiment away from the United States, coinciding with the escalation of President Donald Trump’s trade policies.

In a recent interview on Finance Newso’s “Squawk Box,” Kashkari noted that prevailing market conditions, marked by rising Treasury yields and a decline in the U.S. dollar against other major currencies, contradict traditional expectations in times of heightened tariffs. “Typically, one might anticipate an increase in the dollar during significant tariff announcements. The current decline of the dollar amid these conditions suggests a potential realignment in investor preferences,” he stated.

The 10-year Treasury yield experienced a surge this week following Trump’s announcement of a proposed 10% tariff on all imports from U.S. trading partners, alongside warnings of further, more stringent tariffs before a subsequent retreat from those threats was made on Wednesday.

Concurrent with this development, the value of the U.S. dollar has dropped over 3% against a selection of global currencies, indicating a potential shift from the traditional safe-haven assets associated with the United States.

Kashkari elaborated, “Historically, global investors have deemed the U.S. as the premier investment destination, which typically correlates with a trade deficit. Should this trade deficit diminish, it may imply that investors are reconsidering America’s attractiveness for investment, which could logically lead to higher bond yields.”