If Trump is re-elected, a soft dollar policy will be difficult to implement, Deutsche Bank reveals three major obstacles

According to the financial news app Smart Finance, a recent analysis by Deutsche Bank shows that if former US President Donald Trump wins the election again in 2024, it may have a positive impact on the US dollar. However, this positive outlook comes with some uncertainties, especially considering the possibility of a soft dollar policy by the Trump administration.

Previously, Trump stated in an interview that the strong US dollar is a "huge burden" for US companies selling products and equipment overseas. The US dollar index has risen by about 3% this year, but it is still below the high point of 2024.

George Saravelos, Global Co-Head of Foreign Exchange Research at Deutsche Bank, pointed out in a report on Monday that they have been bullish on the US dollar throughout the year and believe that the prospect of Trump winning again is somewhat favorable for the US dollar. However, he also warned that Trump's second term government may attempt to implement a weak dollar policy, which would be "very difficult to implement" in practice.

Deutsche Bank conducted a detailed analysis of the feasibility of a soft dollar policy, highlighting several major obstacles:

1. Economic costs of unilateral foreign exchange intervention: Devaluing the US dollar could require trillions of dollars. For example, if the US were to follow Japan's lead and announce the establishment of a foreign exchange reserve fund equivalent to 10% of GDP, or $2 trillion, the actual amount needed to make an impact could far exceed this figure. Saravelos cited Japan as an example, noting that Japan used around $63 billion in a two-day market intervention, while the US would need to spend around $250 billion in two days to have a similar impact on the dollar. To achieve intervention goals within just two weeks, the Treasury Department may need to use up to $1 trillion. The sheer size of this market makes it difficult for even the US federal government to fully control.

2. Encouraging capital outflows from the US: Historically, some countries have devalued their currency by encouraging capital outflows through policy measures. For example, in the 1970s, Switzerland attempted to devalue the franc by imposing a 2% penalty on foreign deposits every quarter, but the result was a strengthening franc during that period. Saravelos pointed out that similar policies may also be ineffective in today's global economy.

3. Independence of the Federal Reserve: Deutsche Bank believes that weakening the independence of the Federal Reserve is the most direct and effective way to weaken the US dollar, but the likelihood of this happening in reality is very low. Saravelos noted that if Trump is re-elected, verbal threats to the US dollar may become more frequent, but the nomination of the Treasury Secretary will be a key signal to determine whether the government will prioritize a weak dollar policy. In addition, Trump recently stated in an interview that if he believes Federal Reserve Chairman Jerome Powell is doing the right thing, he may complete his term. This indicates that while Trump may express concerns about the strength of the US dollar, he may still respect the independence of the Federal Reserve