US: What would happen to the Dollar if Trump were to win? – Commerzbank

What would be different under Trump? For FX analysts, specifically: Would a second Trump term lead to US dollar strength or weakness? When US goods become more expensive relative to goods from the rest of the world, it can happen in two ways. Either the price tag on the goods shows a higher price (i.e. US inflation), or the US dollar appreciates against other currencies, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

Trump policies’ influence is unpredictable for the USD

“If the Fed prevents domestic inflation, then the terms-of-trade move occurs via the USD exchange rate. If the Fed were to lose its independence and would have to set interest rates as Trump wants, he will certainly not accept that the Fed destroys all the positive real economic effects that his tariff and tax policy intends. He will then in all likelihood accept inflation. If the Fed has to follow Trump's wishes, the announced tariff and tax policies would result in considerable USD weakness.”

“Trump has announced that he will intern and deport millions of workers, thus depriving the US labor market of them. This would reduce the US economy's production potential. Economists call this a negative supply shock. That would be inflationary.”

“But there is another channel of influence here, and it is clearly USD negative: if the US labor market has fewer workers available, capital invested in the US is less productive. Then the US is not as profitable an investment location as it used to be. And the US dollar – the entry ticket for investments in the US – will lose value. In all these cases, it depends on the combination of the policy areas mentioned above.”