Trump’s Economic Disruption: Could the Dollar Be the Next Target?

How Trump’s Policies Could Reshape the Global Financial System

As President Donald Trump continues to shake up conventional politics, financial markets are beginning to question whether his unorthodox economic policies could extend to the US dollar. While Wall Street remains largely optimistic, a potential shift in the global currency landscape could have far-reaching consequences.

The Strong Dollar Debate: A Longstanding Grievance

• Trump has long criticized the strong US dollar, arguing that it gives foreign competitors an unfair advantage while harming American manufacturing.
• Despite recent dips, the dollar index has risen 15% over the past decade, making US exports more expensive and less competitive.
• The Federal Reserve remains cautious, maintaining steady interest rates, but Trump’s administration may look for alternative ways to weaken the currency.

Could Trump Take Direct Action to Lower the Dollar?

Historically, markets have dismissed the idea that the US government would intervene to weaken the dollar. However, given Trump’s willingness to challenge norms, some analysts believe he could:

• Pressure the Federal Reserve to cut interest rates, fuelling inflation but making US exports cheaper.
• Introduce trade policies that tie foreign currency valuations to trade agreements.
• Build large-scale reserves to influence the foreign exchange market.

Financial Markets React: A False Sense of Security?

• US stock markets remain at record highs, largely ignoring potential currency policy changes.
• Government bonds have stabilized, despite some global reserve managers showing caution.
• The gold market is surging, indicating that some investors are preparing for potential monetary shifts.

What Could This Mean for the Global Economy?

If Trump successfully pushes for a weaker dollar, the effects could ripple across global markets:

• US Markets: A weaker dollar could boost exports but also increase inflation, leading to market volatility.
• European and UK Markets: A declining dollar might strengthen the euro and pound, making European exports less competitive.
• Asian Markets: Currencies like the yen and yuan could appreciate, impacting trade balances and economic growth in China and Japan.
• Emerging Markets: Countries with dollar-denominated debt could see higher repayment costs, leading to economic instability.

Conclusion: Should Investors Brace for a Currency Shake-Up?

While markets remain relatively calm, Trump’s bold and unpredictable policy decisions could lead to significant changes in global finance. A weaker dollar could benefit US exporters, but it might also disrupt global trade flows and inflation rates.

Investors should watch for signs of direct government intervention, Federal Reserve policy shifts, and new trade agreements that could signal an impending currency adjustment. If Trump is willing to shake up NATO, he may be just as willing to reshape the US dollar’s role in the world economy.

Source: (FT.com)