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Republican presidential nominee Donald Trump has made it clear he would like a weaker dollar to make American exports more competitive.
But economists and analysts are flagging challenges to making the greenback weaker — especially if Trump wins a second term.
"It may see the US currency appreciate further as the dollar would probably rise on expectations that 2025 would deliver additional tax cuts, 'America-first' import tariffs, and the potential for stricter immigration policy to tighten the job market," Michael Strobaek, the global CIO at Swiss private bank Lombard Odier, wrote in a note on Monday.
The US dollar strengthened after the failed assassination of Trump on July 13, but fell slightly after President Joe Biden announced he was dropping out of the leadership race.
The US Dollar Index — which measures the value of the greenback against a basket of six other currencies — has risen about 3% this year to date.
Should Trump win the November presidential election, it would be very difficult for his administration to pursue a weak dollar policy — even if he wants to, Deutsche Bank analysts wrote in a note on Monday.
Doing it alone would be extremely expensive for the US since an effective weak dollar policy would need either financial market intervention, capital controls, or "the erosion of Fed independence," the analysts wrote.
The Deutsche Bank analysts estimate that weakening the dollar is a move that would cost far more than $2 trillion. They also said it's not realistic for the US to create a foreign currency reserve fund to boost the dollar.
"To start with, it would require the issuance of additional Treasury debt to fund foreign asset purchases," the German bank's analysts wrote. They added it would come up against the US domestic debt ceiling constraints and would be a fiscal burden for the federal government.
Furthermore, "the optics of a Trump presidency buying foreign assets and losing tax-payer money in the process would not be politically palatable," they added.
While the US could get trading partners to help intervene in the foreign exchange market, these partners may have "no money," per DB. Such an intervention also goes against the G7's commitment to market-determined exchange rates.
The US dollar's status is special since it is the world's reserve currency of choice and a safe haven amid uncertainty.
This means it's likely the currency would be boosted by even more unpredictability, such as what's happening in the US presidential campaign season now.
"Political uncertainties will continue to support demand for the dollar as a haven, possibly all the way through the Democratic Party's process for confirming Mr Biden's replacement at the 19-22 August National Convention," Strobaek of Lombard Odier wrote.
There are also other trends worldwide that drive inflation — including de-globalization and de-carbonization — that would support the dollar, analysts at Macquarie Bank wrote in a note on Monday.
"To the extent that they cause growth to struggle more in the rest of the world than in the US (a reasonable assumption), they can also cause the USD to stay sturdy and strong even though the decade-long strength in the USD seems to be getting on in years," the Macquarie analysts added.
