Strong dollar leaves Trump with a weak hand before midterms
SPY•The dollar recently reached its strongest level in 18 months against major peers, complicating President Donald Trump’s push to boost manufacturing and exports before the November 3 midterms. The trade deficit could rise to 4% of GDP next year, up from 2.7% earlier this year, according to a hedge-fund estimate cited in the article.
1. Dollar moves against agenda
The dollar’s recent strength runs counter to the Trump administration’s stated desire for a weaker currency to support US manufacturing, exports and efforts to shrink the trade deficit. The dollar previously fell amid concerns about tariffs and a “sell America” mentality, but has since rebounded.
2. Global factors support dollar
The dollar has gained relative to other major currencies as investors weigh debt and deficit concerns in developed economies, including France and Japan, while global capital flows into US artificial intelligence investment. Imports have reached record levels, driven in part by purchases of chips, equipment and other goods for the AI build-out. The trade deficit was 2.7% of GDP earlier this year and could reach 4% next year, Dean Maki of Point72 estimates.
3. Policy options and election pressure
The article says coordinated international action has historically been used to shift the dollar’s broad value, citing the 1985 Plaza Accord and 1987 Louvre Accord. It says smaller interventions, such as the recent Treasury action with Japan to support the yen, may have limited lasting impact. The article also notes that tariffs have raised imported-goods costs and that the war with Iran has contributed to higher energy costs, while inflation remains elevated and real wages are falling.
