Trump Tariffs Strengthen Dollar, But Hedge Fund CEO Sees Impending Decline

As the U.S. dollar continues to strengthen following the imposition of tariffs by President Donald Trump, this prominent hedge fund manager is forecasting an inevitable devaluation of the dollar.

What Happened: Kevin C Smith, founder and CEO of Crescat Capital, warns that the global economy is feeling the strain of the dollar's dominance, with global central bank assets now at their lowest level in over four years.

Smith attributes this contraction to the dollar’s strength, which is putting pressure on the world economy. He suggests that a devaluation of the U.S. dollar — whether through a coordinated or organic process against other currencies — is not only likely but “inevitable”.

Importantly, global central bank assets have contracted to their lowest level in over four years. This is largely due to the strength of the dollar, which is suffocating the global economy. We believe a USD devaluation, whether coordinated or organic against other currencies, is… pic.twitter.com/eT5oIKq7ph
— Kevin C. Smith, CFA (@crescatkevin) February 2, 2025

According to Smith, the U.S. dollar nearing its cyclical peak, and the long-term decline of the dollar is already visible when assessed on a 10-year rolling basis. He points to key factors that could lead to the dollar’s depreciation in 2025, like the decrease in fiscal stimulus and the sustained low interest rates, which are partly designed to ease the federal government's growing debt burden.

However, Smith stresses that currency movements are always relative, to other major economies. “Notably, no other major economy — whether Japan, Canada, the Eurozone, the UK, or Australia — faces the same imperative as the United States, which must sustain GDP growth of nearly 5% merely to service its debt,” he adds.

Why It Matters: Smith also acknowledges that Trump’s tariffs may create short-term economic disruptions as they represent just one aspect of broader, long-term policy shifts under the new administration. He points to comments from Treasury Secretary Scott Bessent, who has articulated that a weaker dollar could still coexist with its status as the world's reserve currency — a vision championed by Trump.

Despite the short-term fluctuations that may lead to temporary dollar appreciation, Smith's outlook remains largely pessimistic for the U.S. currency. He believes that the broader trajectory of the dollar is headed toward long-term depreciation.

If this scenario plays out, Smith argues, the consequences could be profound, marking one of the most significant shifts in the global financial landscape since the 2008 Global Financial Crisis.

Trump’s Tariffs: Starting Tuesday, newly implemented tariffs on a third of U.S. imports, including a 10% tax on Chinese goods, are set to take effect, potentially raising prices across a wide range of industries, from agriculture to automobiles. The U.S. Chamber of Commerce has raised alarms about potential supply chain disruptions and increased costs for American families. The group highlighted concerns over the $46 billion worth of agricultural trade with Mexico and $97 billion in energy exports from Canada, both of which could be impacted by the tariffs.

Price Action: The U.S. Dollar Index Spot was trading 1.3% higher at 109.776 on Monday, as of 3:07 a.m., ET. The 52-week high for the index stood at 110.1760 level. The index has risen by 1.06% year-to-date.

According to Benzinga Pro, the exchange-traded funds tracking the index, Invesco DB US Dollar Index Bullish Fund UUP and WisdomTree Bloomberg US Dollar Bullish Fund USDU have returned 5.62% and 7.08%, respectively, over the last one year.

The SPDR S&P 500 ETF Trust SPY, which tracks the S&P 500 index, closed 0.53% lower at $601.82 on Friday. Meanwhile, the Invesco QQQ Trust, Series 1 QQQ, which tracks the Nasdaq 100, fell 0.15% to $522.29.