The idea here is that Trump wants to be the people's man. He wants to boost opportunities for domestic manufacturing and that means making production in the US more attractive. To achieve that, his go to will be to aim for a weaker currency. But realistically, can he make that happen?
On the surface, it looks rather unlikely. And even if you try to search for reasons, it is a tough one to imagine. It didn't happen during his first term as president and it doesn't look like it will this time either.
For one, Trump is still looking to adopt the same approach on trade. Tariffs and trade wars are not something to drag the dollar down. Instead, these protectionism policies only raises more risks for emerging markets and the geopolitical implications also only serve to bolster the dollar's standing; all else being equal.
In particular, Trump's constant feud with China is one that could stoke higher inflation down the road and that will make it even tougher for the Fed to pursue lower rates. Gotta bring back this classic every now and then.
Besides that, Trump is also planning for more tax cuts as a whole. Again, when you take that into consideration, this just serves to bolster domestic demand and in turn keeps spending high and stoke the flames of inflation as well. At the end of the day, it just means the Fed will once again have to deal with that and likely keep policy in a tighter spot.
You can sort of see where this is going now, can you?
Yet, the only realistic option for Trump to weaken the dollar is to pressure the Fed into cutting rates quicker. However, will the central bank throw away whatever independence they have left just to appease him? It is doubtful.
Powell certainly didn't do it during Trump's first term and the Fed certainly won't want to mess things up especially during such a crucial stage of the economic cycle. Stagflation risks are still very much up in the air and it'll leave such a stain on Powell's legacy if he makes the wrong step, and more so just because he wanted to play politics.
All that being said, it doesn't mean that Trump will not get his wish.
The disinflation trend in the US is continuing to take hold, albeit still at a more gradual pace. But as it stays the course in the months ahead, the Fed might just be in a spot to cut rates in a continuing manner going into next year.
And that is a key factor that could pressure the dollar lower amid lower rates/yields. All that before Trump's policymaking is accounted for.
So, there is a chance he may get his wish after all. But in all likelihood, it probably won't be because of his doing. Yet, as a true politician, he will definitely take credit for it - if it happens that is.
