Betting Big on Trump: Is the Trump Trade Really a Sure Thing for the Dollar?

By: Elena Kramer

Investors are buzzing about the “Trump trade” ahead of the election convinced that a Trump victory could be a golden ticket for the dollar. But is this faith in the dollar’s rise driven by another Trump administration grounded in solid logic or is it a risky gamble? Let us dig into the factors and consider if the Trump trade really holds up under scrutiny.

What is the Trump Trade All About?

The Trump trade is based on the belief that a second Trump term would push American stocks upward apply some pressure to Treasuries and ultimately boost the dollar. The idea is that corporate tax cuts and deregulation would pump up equity returns. At the same time these tax cuts would increase government borrowing which could lower bond prices and lift yields. And as the dollar has often moved in sync with interest rates on U S ten year bonds this would theoretically prop up the dollar right?

But here is the kicker while investors expect higher bond yields to make the dollar more appealing fiscal recklessness and inflation are usually bad news for any currency. So why does this dynamic seem different with the dollar? The unique role of the dollar as a “safe asset” in global finance creates its own set of rules. Could this be enough to keep the dollar steady if Trump’s policies were to destabilize the broader economy?

Could Trump Really Keep the Fed in Check?

If Trump wins would he try to lean harder on the Federal Reserve to keep interest rates low? Trump has hinted at dissatisfaction with the Fed’s independence before and if he manages to hold rates down the dollar could weaken as inflation rises. While the Fed may push back there is always a chance of influence especially if Trump doubles down. And a lower interest rate without economic backing would make the dollar far less attractive globally.

Would Trump mind if the dollar weakened? Probably not. He has made it clear he views the dollar’s strength as a disadvantage for American manufacturing. A weaker dollar might help U S exporters by making American goods cheaper on the international market so would Trump intentionally try to devalue the dollar to give U S industries an edge?

Will Tariffs Have a Lasting Impact?

Tariffs are another wild card in this Trump trade calculation. Historically tariffs can boost a currency’s value short term by reducing imports. But if trade barriers continue the economy tends to suffer interest rates could drop and in the longer term the dollar’s strength could fizzle. So while tariffs might add an initial boost would their prolonged impact end up dragging the dollar down instead?

Imagine if Trump’s tariffs were just a negotiating tactic a way to push allies into an agreement to devalue their own currencies could he actually convince other countries to lower the dollar’s value collectively? The approach might recall Reagan’s diplomatic currency deal in the 1980s but given today’s economic climate would Trump really succeed in brokering a deal like that?

Could Foreign Policy Be the Real Risk?

Perhaps the biggest threat to the Trump trade lies outside economic policy altogether. Trump’s foreign policy stance has often been unpredictable. He has occasionally hinted at reducing American security commitments abroad and if allies like Japan or Germany start to doubt the reliability of U S security guarantees they might shift their reserves away from the dollar. This could lead to rising U S interest rates as demand for the dollar drops a scenario that would weaken the currency’s position on the global stage.

So should investors banking on the Trump trade brace for potential fallout if the U S shifts its foreign policy stance? History suggests that a loss of trust from allies could quickly translate to decreased confidence in the dollar.

Is the Trump Trade Really a Smart Bet?

At its core the Trump trade assumes a delicate balance that Trump would increase borrowing to attract investors without destabilizing the foundations that make the dollar globally valuable. But relying on that combination is a high stakes gamble. While Trump’s policy promises may sound enticing for the dollar on paper the reality could turn out to be much different if foreign policy shifts Fed independence is challenged or prolonged tariffs end up backfiring.

As investors look at the dollar in the run up to the election the question is not just whether Trump will win but if a second Trump administration could sustain the dollar’s allure in the global market. Betting on the Trump trade might be a daring move but like any high stakes investment it is one that could easily go in unexpected directions.