Trump's 'Great' Dollar: A Calculated Gamble or Reckless Economic Policy?
The US dollar's slide to a four-and-a-half-year trough against the euro this week was met with an unexpected cheer from the Oval Office. President Donald Trump, breaking with decades of official US strong-dollar rhetoric, declared the currency's decline "great," sending fresh tremors through global markets and laying bare his administration's economic priorities.
While Treasury Secretary Scott Bessent swiftly reiterated the traditional commitment to a strong dollar, analysts viewed Trump's remarks as a clear signal. The president sees a cheaper greenback as a direct tool to narrow the US trade deficit and revitalize domestic manufacturing—a stance that introduces profound uncertainty into global finance.
Anatomy of a Decline
Measured by the DXY index, the dollar has depreciated roughly 12% since President Trump's second-term inauguration in January 2025. This retreat partially reverses a post-election rally but places the euro above $1.20 for the first time since 2021. However, historical context remains crucial; the currency is far from its 2008 lows, suggesting room for further movement.
The immediate trigger for this week's sell-off was Trump's off-the-cuff endorsement in Iowa. Yet, ING strategist Francesco Pesole notes the remark merely punctuated an existing trend fueled by a resurgent "sell America" trade. This sentiment was ignited by renewed tariff threats against Europe over Greenland—a flashpoint reminiscent of April's aggressive "Liberation Day" tariff announcements, which were later walked back.
Compounding the volatility is the impending leadership change at the Federal Reserve. President Trump's public criticism of Chair Jerome Powell for insufficient rate cuts points to a likely successor with a more dovish stance, which would exert additional downward pressure on the dollar.
The Double-Edged Sword
A weaker dollar offers tangible short-term advantages for the Trump agenda. It makes US exports more competitive abroad, potentially boosting factory output and shrinking the trade gap. It also flatters the earnings of multinational corporations and could attract more foreign tourists.
"There's often a quiet disconnect between the strong-dollar mantra and political reality," observes Oren Klachkin, lead economist at Nationwide. "Policymakers, regardless of party, frequently see currency depreciation as a silent partner for their economic goals." This view finds academic backing in a 2024 paper by Stephan Miran, Trump's top economic advisor, which argued that correcting a "persistent dollar overvaluation" was key to reshaping global trade.
But the risks are mounting. "The administration is playing with fire," warns Adam Button, chief currency analyst at ForexLive. "A falling dollar imports inflation, raising costs for American consumers on everything from electronics to automobiles. More critically, it risks undermining the bedrock of US financial dominance—foreign investment in our debt." Button cautions that if global investors start fleeing dollar-denominated assets, the era of cheap borrowing that funds US deficits could abruptly end.
Voices from the Floor
Michael Chen, Portfolio Manager at Hartford Funds: "This is a deliberate, tactical devaluation. The administration is leveraging the dollar to regain manufacturing leverage. It's risky, but not irrational given their policy targets."
David Petrosian, Small Business Owner (Import/Export), Baltimore: "My costs just jumped 15% overnight. This isn't 'great' for Main Street; it's a tax on every small business that relies on imported materials. The White House is sacrificing stability for a political win."
Dr. Eleanor Vance, Professor of International Economics, Stanford: "The real concern is the erosion of policy predictability. Trump's comments undermine the Treasury's credibility and force markets to price in a permanent layer of political risk. That has long-term corrosive effects on the dollar's reserve status."
Rebecca Shaw, Political Commentator: "It's sheer economic nationalism, and a dangerous bluff. He's betting the world has no alternative to the dollar. But every comment like this pushes allies closer to alternatives. It's short-sighted and fundamentally weakens American power."