On Tuesday, U.S. President Donald Trump said the value of the dollar is “great” when questioned on whether he thought it had declined too much, adding pressure to the greenback, which has hit a four-year low.
Multiple factors have contributed to the dollar’s weakness: expectations of continued Federal Reserve rate cuts, tariff uncertainty, policy volatility such as threats to Fed independence, and rising fiscal deficits. All of which have eroded investor confidence in U.S. economic stability.
Though Trump stated that he is not seeking a further decline in value, a lower dollar could benefit U.S. exporters.
“I would want it to… just seek its own level,” he said.
These comments were made to reporters in Iowa before Trump’s speech, expected to centre on the economy as he seeks to rally his loyal rural supporters from a state that hosts key congressional races.
When asked by a reporter about the decline in the value of the dollar, he said, “No, I think it’s great, the value of the dollar … dollar’s doing great.”
Intervention To Prop Up the Yen
Losses in the dollar index (USD), which measures strength against six major currencies, accelerated after Trump’s comments and hit a session low of 95.566—the lowest since February 2022.
“If you look at China and Japan, I used to fight like hell with them, because they always wanted to devalue,” Trump said.
In recent sessions, the dollar has come under pressure as traders prepared for a possible currency intervention by U.S. and Japanese authorities in order to prop up the weakening yen.
The U.S. and Japan have been in talks over conducting rate checks—generally a precursor to an official intervention. In the past two sessions, the yen rallied by as much as 4%.
Decline Could Be Good For MNCs
“FX market participants are always looking for a trend to jump on,” said Steven Englander, head of global G10 FX research and North America macro strategy at Standard Chartered in New York. “Often officials push back against abrupt currency moves, but when the President expresses indifference or even endorses the move, it emboldens USD sellers to keep pushing.”
The decline in the dollar’s value reflects investor worries about the strength of the U.S. economy, and it could lead to inflationary pressures caused by rising imports, it could be of help to some businesses. A weaker dollar allows multinational corporations to convert foreign profits into dollars for a cheaper rate and simultaneously boosts the competitiveness of U.S. exporters’ products.
“On the one hand, it’s good for multinationals… If you have operations around the world and foreign currency revenue that will have a conversion advantage when you turn it into U.S. dollars, that will be good. On the other hand, it makes imported goods more expensive, and there might be some inflationary impact from that,” said Steve Sosnick, market strategist at Interactive Brokers, Greenwich, Connecticut.
Eugene Epstien, head of trading and structured products at Moneycorp, said, “The administration wants a weaker dollar.” He added that it helped to improve the trade deficit.
“The point is, he’s basically making clear that he’s a president who cares about the trade deficit,” said Epstein.
(with inputs from Reuters)
