The value of the U.S. dollar continues to decline.
Amid rising tensions from the trade war initiated by Donald Trump since his return to the White House in January, the U.S. currency has been steadily weakening.
This week, the dollar extended its losses after U.S. industrial activity contracted in May for the third consecutive month, bringing the greenback close to its lowest level since 2023.
Investment banks like Morgan Stanley, JPMorgan, and Goldman Sachs are forecasting further declines in the dollar, citing an escalation in the trade war and a potential weakening of the world's largest economy.
“The dollar has dropped due to Trump’s protectionist and erratic policies, which are eroding the United States' reputation,” Gabriela Siller, director of Economic Analysis at Grupo Financiero BASE in Mexico, told BBC Mundo.
According to Siller, the president’s decisions are affecting growth expectations for the U.S. and casting doubt on the dollar’s status as a safe-haven currency and the world’s primary reserve currency.
One direct consequence of the dollar's fall is that U.S. exports become more competitive in global markets, as they are cheaper for foreign buyers.
Conversely, imported goods entering the U.S. become more expensive.
That’s why the dollar’s depreciation could also discourage the Federal Reserve from lowering interest rates, given the resulting rise in prices of imported goods — and consequently, inflation.
From a broader perspective, many economists are concerned that the dollar's recent decline reflects something more troubling: a loss of confidence in the United States.
“Global trust and reliance on the dollar were built over half a century or more,” said Barry Eichengreen, an economist at the University of California, Berkeley, in late April. “But they can be lost in the blink of an eye.”
Why Trump Might Want a Weak Dollar
Historically, successive U.S. administrations have supported a strong dollar, as it helps keep borrowing costs low and, geopolitically, allows the U.S. to project global power.
It also puts pressure on adversarial countries like Iran, Russia, or Venezuela by limiting their access to dollars for international trade.
Even during past U.S. economic crises, global demand for the dollar remained strong.
However, analysts suggest that Trump sees things differently.
According to these views, the president believes a strong dollar is a barrier to the American manufacturing revival he seeks to achieve.
A weak dollar could help “restore the glory” of U.S. manufacturing, taking the country back to its “golden era.”
“Trump doesn’t want a strong dollar because it increases imports,” said Siller. Analysts believe that the Trump administration sees a weaker dollar as beneficial for encouraging domestic production.
From Trump's perspective, the U.S. needs a weaker dollar to boost domestic manufacturing, recover manufacturing jobs, increase exports, and help reduce the country's massive trade deficit.
Unofficial reports suggest that there’s a proposed strategy known as the “Mar-a-Lago Accord,” attributed to Stephen Miran, chairman of Trump’s Council of Economic Advisers, aimed at weakening the dollar.
The Doubts
This plan is based on the idea that the dollar’s status as a global reserve currency is not a privilege but an expensive burden that has contributed to the deindustrialization of the U.S. economy.
According to this argument, global demand for dollars pushes up its value, making U.S.-made goods more expensive. This, in turn, leads to persistent trade deficits and incentivizes U.S. manufacturers to offshore production — destroying local jobs.
“As clever as Miran’s plan may sound, it is based on a flawed diagnosis,” wrote Kenneth Rogoff, economics and public policy professor at Harvard University and former chief economist of the International Monetary Fund (IMF).
While the dollar’s role as a reserve currency plays a part, Rogoff argues, “it is only one of many factors contributing to the persistent U.S. trade deficits.”
And if the trade deficit has multiple causes, “then the idea that tariffs are a cure-all is, at best, questionable,” he added.
Strictly speaking, no U.S. president controls the dollar’s value relative to other currencies, since exchange rates float freely.
Washington cannot directly manipulate the dollar’s value, as it is determined by the vast global currency market and driven by investor expectations.
Still, U.S. economic policy sends signals to the market, which influence the dollar’s trajectory and key factors such as interest rates.
A Delicate Mechanism
It all works like a delicate mechanism where movement in one part affects the others.
That was the case in April when Trump’s shifting announcements on tariffs undermined investor confidence and damaged U.S. bonds — a key tool the government uses to finance itself.
That erosion of confidence was also bad for the dollar, although some analysts believe the phenomenon is more temporary than structural.
“No other currency or asset — like the yuan, bitcoin, or gold — is large enough to meet the total global demand,” said Steve Ricchiuto, an economist at Mizuho Financial, in a statement to AP. “Right now, there is no alternative.”
U.S. consumers are watching closely for a possible surge in inflation, as they may face higher prices for imported goods — both due to new tariffs and the falling dollar.
What happens in the coming months with Trump’s trade war, his budget and tax cut proposals (currently under debate in Congress), inflation, interest rates, and all their combined impact on the dollar, remains to be seen.
For now, there seem to be more questions than answers — though Wall Street forecasts suggest the dollar is far from staging a comeback.
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