Could Trump drive down the Dollar?
|On 20 January 2025, Donald Trump once again became President of the United States. With a ‘clear mandate’, the Republican intends to harness his victory by addressing his favourite issues. His return to the Oval Office comes at a time when the dollar is witnessing one of the biggest rallies in history. The real effective exchange rate of the greenback is now at a comparable level to the one which led to the Plaza Accord of 1985, and its appreciation has a high likelihood of continuing. This trend is likely to frustrate the new President, who is keen to denounce weak currencies as penalising US industry. At the same time, the dollar's status as reserve currency is essential to the strength of the US economy, which suggests (a contradiction between protecting this position and seeking a depreciation. If the US economy ends up underperforming, such a depreciation could become a reality. Considering an agreement along these lines, similar to the Plaza, seems unrealistic given the complexity of aligning interests.
The return
20 January 2025 marks Donald Trump’s return to the White House. Elected by a comfortable margin on 5 November, the former President begins his final four-year term. To say that this event will usher in a new era in international economic relations is an understatement. Conflicting relationships, uncertainty and unpredictability are the central characteristics of this new world. On the domestic front, the first economic implication of Trump’s victory, under the (admittedly tight) control of Congress, is the heightened risk of inflation, in stark contrast to his first election’s macroeconomic environment. For US counterparties, the two sensitive issues are the potential tightening of global financial conditions, caused by potentially resurging inflation and rising long-term interest rates, and possible prohibitive tariffs. In addition, the valuation of the US dollar relative to other currencies is one area of focus, or, more likely, of tension. Although this issue is not being discussed much outside the United States now, it is one of Trump and his team’s favourite economic topics.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.