Donald Trump’s relationship with the US dollar has always been complicated. During his first term, he openly campaigned for lower money, often clashing with dent standards of behavior. You know, typical Trump.
In 2019, after European Central Bank President Dent hinted at more monetary stimulus, Trump rushed to tweet:
“Mario Draghi just announced that more stimulus could be put in place, which immediately caused the Euro to fall against the Dollar, which would allow them to compete unfairly with the United States. They have been getting away with it for years, just like China and others. »
It was a direct attack on traditional U.S. dollar policy and a signal that Trump was ready to take matters into his own hands. Now, as Dent prepares for a second term, the conversation around the dollar is heating up again. His choice for Treasury Secretary, Scott Bessent, is trying to sell a different narrative.
Scott says the new Trump administration believes in free market dynamics: “If you have good economic policies, naturally you will have a stronger dollar. » But anyone who has followed Trump knows that his actions often speak louder than his administration’s arguments.
A tron dollar and Trump’s business tactics
The dollar is not waiting for Trump to decide. Since his re-election, the DXY Dollar Index, which tracks the dollar against major currencies, has climbed nearly 3%. The hike goes against Trump’s previous preference for a weaker currency and puts pressure on major trading partners like the euro zone and China. Both are already grappling with economic challenges.
Europe’s position is particularly precarious. The European Central Bank has reduced its key rates to combat the risks of recession. Deposit rates could fall from 3% to 1.5%, while inflation remains below the ECB’s 2% target.
On the other hand, US inflation rose to 2.7%, prompting the Federal Reserve to remain cautious about further rate cuts. These dynamics make the dollar naturally stronger, creating a headache for European exporters and widening the trade deficit with the United States.
China is not in a better situation. Its economy is struggling to find balance, with leaders calling for more fiscal and monetary stimulus. The renminbi, China’s currency, has been a key battleground in the trade wars between the United States and China.
Deliberate efforts by Chinese authorities to weaken the renminbi by buying back dollars are not new, and many analysts expect more of the same to happen in the coming months. If Trump revives his policy of heavy tariffs, China could respond with currency manipulation, opening the way to a new set of economic strategies.
This is where Trump’s unpredictable nature becomes a factor. During his first term, he did not hesitate to attack foreign stimulus measures, accusing them of harming American trade. If the dollar continues to rise, Trump could easily adopt a similar stance, especially if it helps him sell his trade policy as a victory for American workers.
A new monetary agreement or a new Twitter storm?
Trump has never been one to play by the rules. In 1985, the Plaza Accord saw major economies agree to weaken the dollar to balance global trade. Could he attempt a modern version of this, perhaps dubbed the “Mar-a-Lago Accord”?
It’s not a stretch to imagine him demanding monetary concessions from America’s trading partners in exchange for tariff relief. But reaching such an agreement would require matic finesse – something that Trump’s impulsive approach often lacks.
The problem with currency negotiations is their complexity. Exchange rates are not just numbers; they reflect the economic health, trade dynamics and monetary policies of entire nations. Coordinating these factors across multiple economies is like playing chess on multiple boards simultaneously.
Trump’s tendency to simplify issues in terms of winner or loser makes this a particularly risky path. Some analysts are already preparing for what they call “currency wars.”
Despite these risks, markets appear to have priced in much of Trump’s potential impact. The dollar index has jumped 6% since late October, when investors began betting on its victory. This could limit the dollar’s upward momentum next year.
But if Trump starts actively pressuring foreign governments to weaken their currencies, all bets are off. Social media-driven diplomacy could return with a vengeance, making financial markets more unpredictable than ever.
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