Image Source: Pixabay

While most people are focused on what’s happening with tariffs right now, I want to bring your attention to another related matter that’s just as important, if not more so. 

We have to watch the largest and most important market out there - currencies.

What do currencies, and specifically, the U.S. dollar have to do with tariffs? A lot more than most think.

As we are now in the early stages of the 90-day tariff pause (save for China), I want to bring your attention to another time where trade and the dollar were at the center of global finance discussions. 

Check this out… 

Let’s Go Back in Time… to the Plaza Hotel!

Unfortunately, the story I’m about to share when it comes to the Plaza Hotel doesn’t involve Home Alone 2, but if you ever saw that movie and recall, Donald Trump was featured for a brief moment when Kevin asked him for directions in the hotel hallway.

But today I want to talk to you about the Plaza Accord, which was an agreement signed in 1985 by five major countries—the United States, Japan, West Germany, France, and the United Kingdom—at the Plaza Hotel in New York. 

At the time, the U.S. dollar was very strong, like it’s been lately, and it made American products expensive to sell abroad and led to a big trade deficit, especially with Japan. 

The countries agreed to work together to weaken the dollar by selling it and buying other currencies like the Japanese yen and German deutschmark. They also promised to make some changes in their economies, like the U.S. cutting its budget deficit and Japan boosting its own spending.

While the plan is given a lot of credit for solving some of the global economy’s problems, check out this chart below. Note how the dollar peaked in February 1985, and seven months later in September, the agreement was signed.

The dollar has been getting sold like crazy in recent weeks against both the yen and the euro. But overall, the global economic situation is eerily familiar to how it was in the 1980s in terms of currency and trade.

Could the currency market be pricing in a Mar-A-Lago Accord in the coming months? I’m not ruling it out at all, and that’s probably why the dollar has been getting slammed. 

By the way, the Plaza Accord was negotiated in secret - is something similar happening this time around?

I think a deal on tariffs will be made, and rest assured, it’s going to involve some aspects of the dollar being so strong.

In the years that followed the Plaza Accord, stocks in the U.S. did pretty well, at least until Black Monday in 1987. If you look at Japan, it led to a record asset bubble, which eventually popped in 1989. The Nikkei didn’t make a new all-time high until last year!

Remember, everything that happens in stocks is downstream from currencies. And you know me, I’m all about the strongest stocks in the strongest sectors in the strongest countries. This is a development I’m watching very closely right now, and will keep you updated as more developments arise.

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