Trump Team Tries to Tame the Dollar Beast
US Treasury chief Scott Bessent has been working behind the scenes to deflate the dollar's exchange rate, which has been inflated by nearly 50% since 2011. The effort is part of a broader strategy to rebalance US trade and investment and re-industrialize the world's largest economy.
Bilateral trade deals with Japan and other Asian countries have been key to this effort. In July, the US and Japan coordinated a joint intervention to boost the yen, which has since rebounded by over 6%.
The dollar's retreat is most pronounced in Asia, where China's offshore yuan has appreciated by almost 10% since the original 'Liberation Day' Trump tariffs were imposed. The South Korean won has also rebounded, with gains of around 15% in just six weeks.
However, experts warn that deflating the dollar will be a challenging task, particularly if US growth and inflation reheat and the Federal Reserve is forced to tighten interest rates. Currency manager Stephen Jen suggests that the administration may be opting for a 'mini Mar-a-Lago Accords' approach, where multiple small interventions chip away at the value of the dollar without creating expectations of further depreciation.
Societe Generale's Kit Juckes notes that all actions by the Trump team 'consistently hint at a desire for a weaker dollar.' The problem may lie in how to stop or limit the exit of overseas capital that may follow.