Trump wants a “weak dollar,” many big banks said bluntly: It's not that easy

The Zhitong Finance App learned that Wall Street strategists said that if Trump is re-elected as US president, this will boost the dollar, even though Trump recently said he would prefer the dollar to weaken. According to reports, one of Trump's policies receiving the most attention from the market is to promote exports through a “weak dollar” policy. However, trying to depreciate the dollar is not as easy as one might think. Trump's preferred combination of low taxes and high tariffs is thought to stimulate inflation and interest rates, which increases the dollar's appeal. Furthermore, due to its safe-haven status, demand for the dollar will also increase in uncertain times.

Deutsche Bank said in a Monday report that it is “very difficult” to weaken the US dollar because it would cause trillions of dollars in intervention costs or policies aimed at encouraging large-scale capital outflows from the US. The bank's strategist said, “Compared with policies that drive the dollar weaken, tariffs and their stronger impact on the US dollar are more likely to be the result of dominating the market.”

Barclays said that other long-term drivers, such as a slowdown in global economic growth, will continue to support the US dollar. Barclays strategists, including Themistoklis Fiotakis, said in a report: “Even the tariff risk itself is enough to support the dollar's rise.” The bank also advises clients to take advantage of the dollar's recent weakness to re-enter long trades.

James Lord, a strategist at Morgan Stanley, said that after Trump recently commented that he wants the dollar to weaken, the market debate over the dollar's prospects has heated up, but he insisted that Trump's potential tariff policies will strengthen the dollar, and this will be even more so if trading partners' retaliation measures pose a risk to the global economy. James Lord said, “It is difficult for foreign exchange market intervention to continuously change exchange rate trends. We believe investors generally agree with us that the dollar may appreciate due to the implementation of trade tariff policies.”

Furthermore, while Trump may be trying to weaken the dollar by curbing the independence of the Federal Reserve, given the dollar's unique position, government checks and balances will make this path extremely challenging. TS Lombard Managing Director Dario Perkins said, “Although weakening the credibility of the Federal Reserve would be a good starting point, any US administration faces a more difficult task than any other government, which is to depreciate the dollar. The US dollar is the world's reserve currency, which has led to structured dollar buying.” Notably, Trump this week clearly denied plans to weaken the independence of the Federal Reserve and supported Powell's continued presidency.

According to reports, in the past week, the US dollar showed its dominant position as a safe-haven currency. Although political headlines and tension prior to the release of earnings reports were intertwined, causing US stocks, US debt, oil, and gold to fall at the same time, the US dollar index recorded its first weekly rise in three weeks and recorded the biggest increase since the beginning of June. Market momentum also favors the US dollar, and investors and asset managers are once again increasing their long positions in the dollar.