Trump and the Dollar: What’s Next for the "Global" Currency and When to Expect Its Peak Value?

The US dollar continues to be the primary global currency, accounting for a significant portion of global reserves and trade transactions. With the rise to power of Donald Trump, the strength of the dollar may experience both strengthening and weakening depending on political and economic factors. These factors are discussed in the article by RBC-Ukraine journalist Alik Sakhno.

How Trump's Initiatives Affect the Dollar and the US Economy

In his campaign speeches, the future 47th president of the United States, Donald Trump frequently expressed a desire to see a weaker dollar, as noted by Alexander Martynenko, head of corporate analysis at ICU Group. According to Trump's vision, this would help enhance the competitiveness of American exports and reduce the US trade deficit.

“At the same time, the reality is that due to the strong state of the US economy relative to other leading economies, the attractiveness of American capital markets, and US leadership in the high-tech sector, the dollar remains strong. Moreover, all of Trump's initiatives to increase import tariffs on goods from key US trading partners intensify concerns about their economic prospects and currently only contribute to the further strengthening of the dollar,” – Martynenko told RBC-Ukraine.

Financial analyst Andrey Shevchishin also believes that the US dollar will maintain a strong position relative to other global currencies for the foreseeable future. Additionally, according to the expert, the dollar index could return to historic highs from 40 years ago against a basket of six currencies from the main US trading partners: the euro, Japanese yen, British pound sterling, Canadian dollar, Swedish krona, and Swiss franc.

“Over the past 20 years, the dollar index has fluctuated between 100 and 106 units. However, since November 2024, the dollar index has moved out of this range, reaching a mark of 109 units against the currency basket even before the inauguration. This breakthrough after a long period of stability indicates potential for further growth. This is likely linked to Trump's protectionist policies, which include strengthening the US position and the need for importing technological equipment, restoring factory construction, and stimulating industrial development,” – claims Shevchishin.

According to him, once the situation stabilizes and there is a sufficient resource and industrial base, US authorities will begin a gradual weakening of the dollar. Andrey Shevchishin predicts that this will not happen until at least the end of 2025.

The Influence of Fed Policy on the Dollar Exchange Rate

Another signal that the United States is currently interested in maintaining a strong dollar is the Federal Reserve's (Fed) decision to keep the interest rate at 4.25-4.50%. This level is higher than in Europe, which motivates investors to invest in US assets, as they will receive a higher return compared to directing funds to other developed countries.

“While central banks in Europe and the UK are considering rate cuts to support a stagnating or slowing economy, the Fed maintains a high rate. It is difficult to say at this point whether it will lower rates in upcoming meetings. Given Trump's policies and tariff wars, inflation in the US may remain high, and in that case, there would be no rationale for reducing rates,” – explains the financial analyst.

He adds that subsequently, through the mechanism of the Fed rate, the dollar's value could be lowered. The American establishment may opt for this to enhance the competitiveness of American exports. This could be achieved, in particular, by devaluing the national currency to a certain level. According to Shevchishin, Trump's team will find it easier to implement such a policy after the resignation of the current Federal Reserve Chairman Jerome Powell.

Peak Dollar Value and Potential Decline

The dollar is nearing its peak and will soon begin to significantly lose “weight”, believes Artem Shcherbina, investment director at Capital Times. He points out that the recent statements from Trump and his administration indicate that they will be constantly seeking solutions to reduce the US budget deficit.

“In the future, the US may influence the dollar exchange rate through currency interventions. Donald Trump, who previously supported the development of the domestic market, is against a strong dollar and high rates. Currently, dollar rates are quite high compared to the euro, Japanese yen, and British pound, which creates certain pressure on the US economy. However, due to changes in economic policy, this could change as early as the first year of Trump’s presidential term. It is expected that this year the dollar may reach its peak and then start to decline,” – Shcherbina tells RBC-Ukraine.

Shcherbina believes that Trump's trade war, which includes a 10% tariff on Chinese goods and a one-month delay on 25% tariffs on imports from Canada and Mexico, could strengthen the dollar against the currencies of these countries. However, he notes that other global currencies are responding significantly less, strengthening primarily against the Canadian dollar and Mexican peso.

“If this policy extends to the euro, the dollar may face risks in the short term. However, the main goal of monetary policy remains to avoid an excessively strong dollar, which would allow consumers to purchase goods and businesses to operate in foreign markets,” – he explains.

The expert also predicts that the currency market will be unstable for several years, with dollar fluctuations between rises and falls. The US has enough reserves to influence the exchange rate, but due to rising rates and restrictions on money supply, applying these mechanisms has become more challenging. They are currently actively seeking new ways to stabilize the situation.

“One of the options proposed by Trump – is a significant tax reduction to stimulate the economy and cover the deficit through economic growth. However, without lowering the cost of loans, this strategy may be ineffective,” – notes Shcherbina.

He does not rule out that to reduce the debt pressure on the US economy, the country may start using its significant gold reserves, which are currently at peak levels. It is also possible that the US will offer other countries to purchase gold-denominated bonds to prevent a market crash due to large sales volumes.

Artem Shcherbina also notes that an aggressive policy may become a defining feature of the US in the coming years, making it difficult to predict specific actions, including regarding the dollar.

This material includes exclusive comments from Alexander Martynenko, head of corporate analysis at ICU Group, financial analyst Andrey Shevchishin, and Artem Shcherbina, investment director at Capital Times.