Donald Trump’s determination spells trouble for the U.S. dollar, as he is likely to get what he wants: lower interest rates, which would further undermine a currency already pressured by his ambitions.
Since he returned to power, the dollar has lost value during a trade war he started, a conflict that has broadened as the United States has assumed control of Venezuela’s vast oil resources and seeks to take ownership of Greenland. Rather than spurring demand for the global reserve currency, as is usual during risk-averse episodes, there has been a flow of cash away from the dollar – one that could become a flood if he also assumes control of monetary policy and forces U.S. interest rates down. Should the U.S. central bank lose its independence, there is a risk of a disorderly, rapid drop in the dollar’s value – an outcome that might worry institutions such as the Federal Reserve but may please the U.S. leader, who has witnessed a rapid reduction in the current-account deficit during his second term in office, which could turn into a surplus if the dollar keeps falling.
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)