Investing.com — Donald Trump has made bold claims about his preference for a weaker dollar, but the former president’s core policies on tariffs, immigration and taxes are expected to do the exact opposite.
“Former US President Donald Trump has expressed a desire for a weaker USD, but his core policies (on immigration, tariffs, taxes) point to a stronger USD,” Macquarie said in a note on Monday.
Trump’s tariff policies, industrial policies, immigration policies and tax policies are expected to be inflationary, causing real interest rates and the dollar to rise, Macquarie added.
However, dollar bears usually resist the idea that Trump’s policies are dollar-friendly. They suggest that a potential strengthening of the dollar would force Trump to implement more policies that would put greater pressure on the dollar.
There are several policies Trump could pursue to immediately weaken the dollar — including pressuring the Fed to cut rates, instructing the U.S. Treasury Department to sell dollars from reserves and imposing restrictions on inward capital investments to the US – but none of these strategies would work. Trump has said he does not want to remove Jerome Powell as Fed chairman and that he “cannot simply instruct the Treasury Department (and its Exchange Stabilization Fund) to sell USD,” Macquarie added.
But there could be one policy path to weakening the dollar: offering trade concessions to countries, especially emerging countries linked to the US, that are willing to revalue their currencies against the dollar.
But this would come at the expense of Trump’s pro-tariff agenda, Macquarie says. This approach would “result in a tiered system of trading partners and lead to a reduction in tariffs, something Trump has not yet endorsed as a possibility.”
“This is the only policy option under a Trump administration that could result in a weaker USD, but would still require an overturn/removal of the ‘higher rates’ framework that Trump has proposed,” Macquarie added.
In the most likely scenario, Trump will likely “join the stronger USD that may result from his core policies,” Macquarie says, unless the former president is willing to change his core policies “most logically” towards one of lowering the rates for countries. who revalue their own currency.”
