Rally of the US Dollar Presents Challenges for Trump

The forecasts on Wall Street suggest that the US dollar will continue its recent surge and might even reach parity with the euro. This trend could pose a challenge for the prospective president, Donald Trump, who has consistently advocated for a weakening of the US currency. Since the beginning of October, the dollar has gained 6.1 percent, marking the strongest quarter since the Federal Reserve's interest rate hike in 2022. Market observers increasingly believed that the Republican candidate would win the election in November to implement his economic program with trade tariffs and tax cuts. A survey by the Financial Times shows that more than half of the leading banks, including Goldman Sachs, Morgan Stanley, and UBS, expect a further rise in the dollar next year. Deutsche Bank even predicts that the dollar could catch up with the euro by 2025. Many fund managers mock Trump's efforts to support the domestic industry by weakening the US currency. Sonal Desai from Franklin Templeton stated that Trump's policies are more likely to strengthen rather than weaken the dollar. Therefore, the prospect of a weaker dollar under Trump is met with skepticism. Trump's passion for a weaker currency was visible during his first term when he railed against the allegedly unfair currency policies of other countries. However, his pro-growth agenda and planned tax cuts could fuel inflation and prompt the Federal Reserve to keep interest rates high, which could, in turn, favor the influx of foreign capital. However, analysts warn of the complex mechanisms of potential solutions that could jeopardize the international position of the US currency. Speculations about a Plaza Accord-style agreement from the Reagan era receive little enthusiasm, especially as the economic conditions and interest rate differentials continue to boost the dollar. Eric Winograd from AllianceBernstein emphasized that investors should bet on holding the dollar long-term. Despite all Trump's attempts to influence the dollar through rhetoric, fundamental market mechanisms remain dominant.