Trump wants a weaker dollar. Here's why.

Key points

• Former President Trump is now the presidential favorite according to multiple prediction markets
• The US trade deficit hit a new multiyear low in May, fueled by falling exports
• Trump has been a vocal advocate for lessening the trade deficit in the US
• A weaker dollar could greaten foreign demand for goods and raise exports
• The presidency does not have a direct impact on the valuation of the US dollar, though could be influential through policy changes

Trump now presidential favorite by most metrics

Donald Trump is emerging as the favorite for the US presidency according to prediction markets like Polymarket, with odds rising to 70%. He has become increasingly vocal in political circles, especially as it pertains to his monetary policy plans and economic prioritization. Financial markets have begun reacting to this shift in potential election outcomes as participants speculate what a Trump presidency could mean for markets.

Is the US dollar too strong?

Throughout Biden's presidency, headlined by a monumental resurgence following the pandemic, the dollar has appreciated against several major currencies. Most notably, the dollar has gained an astounding 50% against the Japanese yen since November of 2020. Trump has been consistently vocal about his views on a strong US dollar, denoting it as detrimental to economic competitiveness. His criticisms underscore the challenges a robust dollar poses to American exports, influencing his stance on monetary policies.

US trade deficit worsens amid strong USD

The balance of trade in the US, exports minus imports, has historically run negative due to a myriad of factors such as consumer demand and manufacturing dependencies overseas. In recent months, the trade deficit has deepened to its lowest level since 2022, exacerbated by a strong dollar which inflated imports and stymied exports. If Trump makes a point to remedy this trade balance, weakening the dollar would be beneficial to stimulate exports.

Manufacturers fail to create foreign demand

Expanding on the dynamics of US exports, companies like Caterpillar and Boeing find it increasingly challenging to bolster foreign demand due to the strong dollar. This scenario limits their global competitiveness, potentially prompting industry-wide calls for a more balanced trade approach.

Can the US devalue its currency?

While direct manipulation of currency values isn't a tactic of the US, the Federal Reserve could influence depreciation through lower interest rates and increased monetary supply, potentially offsetting some of the dollar's strength.

Would a Trump win be bearish USD?

Though the US presidency significantly impacts fiscal policies, it directly controls neither the central bank's decisions nor the comprehensive outcomes of currency valuations. However, a presidential stance favoring a weaker dollar could indirectly influence market sentiments and monetary responses.

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