Evolution of Trump's impact on Latin America

 



The Trump administration's economic policies are generating uncertainty in global markets, especially in the dominance of the dollar. While a weaker dollar could benefit US manufacturing and reduce the trade deficit, it could also boost inflation and make rate cuts by the Federal Reserve more difficult. At the same time, increased military spending and fiscal easing in Europe have strengthened the euro, altering global monetary dynamics. 

The intensifying US trade war has had significant economic effects, with rising tariffs and increased uncertainty affecting US growth. In contrast, optimism about the European economy has boosted eurozone stocks and bonds, contributing to the dollar's depreciation against the euro. However, the effectiveness of these policies remains in question, as the growing US budget deficit could keep Treasury yields high, putting upward pressure on the dollar. 

Economic projections reflect more moderate growth in the United States and the euro area. The OECD has lowered its estimates for 2025 and 2026, with US GDP growth projected at 2.2% in 2025 and 1.6% in 2026, while the eurozone is projected to grow by less than 1% in 2025. These figures reflect the impact of trade and fiscal policies in both regions. 

Regarding the EUR/USD exchange rate, analysts are divided in their views. While some expect the euro to strengthen to 1.25 by the end of 2025, others expect the dollar to remain strong at around 1.00-1.05. This divergence reflects the uncertainty surrounding global economic developments and monetary strategies in each region. This divergence reflects the uncertainty surrounding the evolution of the global economy and the monetary strategies of each region.

In this sense, the depreciation of the dollar against Latin American currencies could have several effects on the region:

More competitive exports

Latin American products could become more attractive in international markets due to the falling dollar. In Mexico, for example, the depreciation of the peso (reaching 20.76 to the dollar) could help partially offset the impact of US tariffs, improving the competitiveness of its exports.

Pressures on local currencies

Despite the general weakening of the dollar, the region's currencies could face challenges. In Brazil, the real is expected to weaken in 2025, which could lead to higher interest rates, close to 15%. This could have negative consequences for economic growth and inflation in the region.

Effects on external debt

A weaker dollar could ease the burden of dollar-denominated debt for Latin American countries. However, this potential benefit could be offset by higher interest rates in the United States, which could increase the cost of servicing external debt.

Variable to consider

It is important to note that these implications are subject to market volatility and political factors, such as US trade policies and Latin American governments' responses to current economic challenges.

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