The US dollar rises to a six-month high, and Wall Street continues to be bullish: the key is Trump

As Trump's tariff remarks intensify inflation concerns, the dollar's rally strengthens, reaching a six-month high. Wall Street strategists unanimously believe the dollar will continue to rise, but there are differences regarding the extent of future gains.

Overnight, the dollar index rose by 0.6%, surpassing the 106 mark, reaching its highest level since May. The Bloomberg Dollar Index climbed to its highest since November 2022 on Tuesday. Non-dollar currencies generally faced pressure, with the euro falling to its lowest point in a year, and the yen and Canadian dollar also dropping to critical psychological levels.

Wall Street strategists unanimously call for the dollar to continue strengthening. According to recent reports, due to concerns that tariffs will exacerbate inflation and harm foreign economies, JP Morgan, Goldman Sachs, and Citigroup all expect the dollar to continue rising from current levels. However, how much the dollar can rise may ultimately depend on how much Trump translates his tariff stance into action after taking office, and whether he himself accepts the rise in exchange rates.

At the same time, options trading and the latest positioning data indicate that traders are also betting on further dollar appreciation, with bullish sentiment for the dollar reaching its highest level since early July for the next year.

It is worth mentioning that since Trump's election victory, concerns about aggressive tariffs potentially driving up prices or policies like tax cuts leading to an overheating economy have led investors to lower their expectations for Fed rate cuts. The futures market now estimates the likelihood of the Fed cutting rates for the third consecutive time at the December meeting to be about 62%, down from around 81% before last week's election.

The dollar's movement was also influenced by some reports on Tuesday that emphasized Trump's potential for more aggressive foreign policy, including possible tariffs. Reports indicate that Trump plans to appoint hawkish figure Marco Rubio as Secretary of State. Additionally, the Republican Party is set to confirm its majority in both the House and Senate, clearing the way for Trump to push for large-scale tax cuts or tariff policies.

Wall Street is Bullish on the Dollar

Monex forex trader Helen Given stated:

We believe the dollar could significantly strengthen next year and even in 2026. The domestic policies of the Trump administration point to massive spending, while international policies may be quite protectionist, which will greatly alter the calculations of forecasts.

George Saravelos, Global Head of FX Research at Deutsche Bank, remarked:

Uncertainty remains high, and the key lies in the scale and speed of policy changes. If Trump's agenda is fully and swiftly implemented, we may see the euro/dollar fall below parity, dropping to 0.95 cents or even lower.

Since the U.S. election, several banks have significantly lowered their forecasts for the euro, with many major banks believing there is a risk of the euro falling to parity against the dollar next year.

For JP Morgan, even without a formal announcement of tariffs, the emotional shock brought by Trump's election victory is enough to boost the dollar. JP Morgan strategist Meera Chandan believes:

Despite the uncertain timing of Trump's policies, the dollar's movement is unlikely to be linear, and the dollar index is expected to rise by 7% in the coming months. This will bring the euro to dollar exchange rate close to parity and the Chinese yuan to dollar exchange rate near 7.40.

Goldman Sachs strategist Kamakshya Trivedi stated:

Although a stronger dollar is far from guaranteed, even with impending protectionist measures, the extent of any additional increase may vary due to the responses from other countries.

Strategists at Barclays and Brown Brothers Harriman also believe:

There is almost nothing to stop the dollar from continuing to rise, aside from Trump's policy agenda; economic momentum has also shifted in favor of the dollar. After Federal Reserve officials did not clearly guide the timing and pace of further rate cuts, traders reduced their bets on the extent of Fed rate cuts.

Kit Juckes, head of currency strategy at Société Générale, expects that the dollar's strength has not yet entered the first half:

The dollar will peak this quarter before Trump's inauguration, but it may still remain at a high level next year. Sentiment is hard to be more favorable for the dollar than it is now; with Trump's victory, this is very beneficial for the dollar, but we haven't even entered the first half yet