Donald Trump’s proposal to enforce dollar dominance in global trade might lead to economic disruption and potentially weaken the U.S. currency, warns a strategist from Commerzbank AG.
What Happened: Ulrich Leuchtmann, the head of foreign exchange research at Commerzbank AG, analyzed a potential sequence of events that could unfold in the U.S. financial markets if Trump’s threat to impose 100% tariffs on countries that avoid the dollar becomes a reality, Bloomberg reported on Monday. This threat was made at a rally in Wisconsin on Saturday.
"Trump now wants to change that and force dollar dominance. That changes everything," Leuchtmann said in a note, adding that it could result in “massive disruption” to the global economic system.
Leuchtmann suggests that investors should heed Trump’s campaign promises. He cautioned that the proposed tariffs could backfire, potentially encouraging countries to move away from the dollar. This could jeopardize the safe-haven status of Treasuries and trigger a significant weakening of the dollar.
However, Leuchtmann also acknowledged that there are arguments in favor of the dollar strengthening under a Trump presidency. He has been largely bullish on the dollar this year. Other strategists, including those at Morgan Stanley and Deutsche Bank AG, have previously argued that Trump’s tariff platform and focus on US economic growth could result in a stronger dollar.
Despite the decrease in dollar dominance over recent decades, it still accounted for 59% of official foreign-exchange reserves in first quarter 2024, with the euro trailing at nearly 20%, as per the International Monetary Fund.
Why It Matters: Trump’s vow to maintain the dollar's status as the world's primary reserve currency was a key part of his presidential platform. However, concerns were raised that Trump's fiscal policies could weaken the dollar's dominance.
Trump’s economic legacy has been a topic of debate, with critics arguing that he inherited a strong economy from his predecessor, Barack Obama. Trump’s economic policies have also been targeted in political campaigns, with Vice President Kamala Harris criticizing them in a recent advertisement.
Read Next:
Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
Image via Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
