Currency Wrap-up

By David Grimaldi, Foreign Exchange Sales Consultant

The Dollar Surge

The dollar has climbed more than 4% since August as traders factored in a President Donald Trump election win, which also came with a sweep of the House and Senate. The reasoning was that Trump’s proposed tariffs on imports would drive up the cost of goods, keeping inflation high and resulting in a slower path of rate cuts by the Federal Reserve. “The markets are moving to price in a greater probability of a Trump victory,” Lee Hardman, senior currency analyst at MUFG, told the Financial Times prior to the November 5 election.

Treasuries have also followed this path as the U.S. 10-year yield surged to 4.25% last week, the highest since mid-July. Trump and his vice presidential running mate, JD Vance, are on record to weaken the dollar to combat his tariff policy and increase exports. Scott Bessent, a top economic advisor to Trump, and a hedge fund manager who once worked for George Soros, the most famous currency trader in history, believes Trump would support a strong dollar. Bessent said Trump “stands by the U.S. as a reserve currency.

“The reserve currency can go up and down based on the market. I believe that if you have good economic policies, you’re naturally going to have a strong dollar.”

He also stated that tariff policy is more of a position that Trump tends to “escalate to de-escalate” to achieve trade goals. Additionally, oil has played a large factor in inflation in the U.S. as prices rose in November 2020 from $34 per barrel to a high of $129 per barrel over the last four years, to its current $76. Trump has promised to increase oil production and depart from President Joe Biden’s green energy stance, which would drive down inflation and weaken the dollar.

Bessent has been a name dropped as a possible U.S. Secretary of the Treasury, so markets are following his opinions, especially on currencies in which he is an expert. Soros is famous for selling pounds against the Bank of England during the 1990s and Bessent was integral to that trade. Soros who has moved onto philanthropy and, more recent, funding U.S. district attorney elections in large cities, which in many cases has resulted in no bail, decreased criminal prosecution and increased crime rates. More recent, Soros has turned over his empire to his son, who is now buying U.S. radio stations, which many conservatives fear could silence right-leaning programming.

Bessent seems to believe “George is very good at understanding how complex systems either accelerate or break down. And I think that’s my strong point, too,” said Bessent. “Unfortunately, he’s taken that to the political arena.”

Bessent said he viewed himself as “the bridge” between traditional and nationalist conservatism, which were at odds over foreign trade, among other topics. “I’m quite concerned that this is the last chance to grow our way out of this debt and not become a European-style, over-regulated, over-indebted economy,” he said. “I think that we are in the midst of a reordering on international trade and relationships, and I’d like to be a part of that, either on the inside or the outside.”