The US dollar is braced for a tough time marked by high volatility and a plunge across the board due to Donald Trump's policies. Analysts at BCA Research have come up with this gloomy forecast. The financial research firm does not share the optimistic outlook for the US currency. The greenback is likely to lose in value by mid-2025 because of Trump’s protectionist rhetoric.
According to Marco Papic, Chief Strategist and Senior Vice President at BCA Research, the US dollar is likely to gain ground in the short term, particularly in response to tariff hikes and tax cuts introduced by Trump’s administration. However, the greenback is expected to weaken in the long run as high US Treasury yields and a growing budget deficit will eventually force the president to tone down his aggressive fiscal policies. This scenario could weigh heavily on the US dollar.
Marco Papic is convinced that the US government's reliance on stimulus-driven fiscal policy to support American assets is not the best approach. He believes the US dollar will start to decline "as soon as the government spending comes to the fore." Even though recent strong labor market data provided temporary support for the dollar, the expert warns that the uptrend will be short-lived and could falter in the face of fiscal policy challenges.
BCA Research admits that the greenback could revisit its 2022 highs. However, Trump’s fiscal approach remains a major hurdle for the US currency. Besides, the financial strategy of the new White House administration will likely encounter significant obstacles over the next six months. Trump's ambitious spending plans directly clash with the ballooning budget deficit, which has reached alarming levels.
Trump may be forced to scale back his promised tax cuts and trade tariffs to balance his massive fiscal ambitions with bond market expectations. Such policy adjustments could disappoint market participants who had hoped for a dollar-friendly administration. However, traders and investors may need to revise their strategies to avoid heavy losses in the shifting economic landscape.
