How will Trump’s reelection impact the US Dollar

Donald Trump’s reelection as US president could significantly impact the strength of the US dollar in the global market, particularly due to his administration’s hardline trade policies. 

“I do believe that the US dollar will continue to strengthen against other currencies,” Senior Research Analyst at Barita, Shane Bennett said on Taking Stock with Kalilah Reynolds.

He said that the President’s strict policy plans could worsen economic disparities between the United States and its trading partners. 

According to Bennett, higher tariffs could reduce demand for imported goods, impacting countries like Canada and Mexico, where 70-75% of exports are US-bound.

“The impact on their terms of trade would be significant, to say the least,” Bennett remarked, noting that these shifts could influence foreign exchange movements and contribute to a stronger US dollar.

However, this trajectory is not without risks. Bennett cautioned that retaliatory tariffs and escalating trade wars could disrupt global trade flows, potentially reigniting inflationary pressures. These disruptions might increase economic uncertainty and investor risk aversion, driving risk premiums and lowering bond prices.

Despite these challenges, Bennett believes that Trump’s administration would likely use tariffs as leverage for negotiating more favourable trade terms. 

In the meantime, the immediate impact of such policies could be felt through heightened inflation, which may influence the Federal Reserve’s monetary stance. He explained, “The possibility of rates remaining higher for longer—higher yields on US Treasuries and corporates—could drive demand for the US dollar higher, resulting in the US dollar appreciating.”

While a stronger dollar may benefit US investors in the short term, the long-term economic consequences—both domestically and internationally—will depend on how these policies are implemented and how trading partners respond.