What If the dollar keeps falling?

During the presidential campaign, Trump repeatedly advocated for a weaker dollar to support US exporters. As the saying goes, no sooner said than done. Since his return to the White House on January 20, the U.S. dollar index has fallen by almost 10%, despite ongoing trade wars and a geopolitical context that remains far from stable.

What is driving the dollar down?

First, the Federal Reserve's shift toward a more accommodative monetary policy. Although not at the pace Trump would prefer, the Fed has resumed rate cuts, and markets expect at least two more reductions next year, assuming inflation continues to approach the 2% target.

The mechanism is simple: when the Fed cuts rates, yields on dollar-denominated assets decline. Dollar bonds and deposits become less attractive, causing capital to flow into other currencies or higher-yielding assets. This weakens demand for the dollar and puts downward pressure on the DXY.

The deterioration of the U.S. fiscal situation is also not helping the dollar. According to the Joint Economic Committee's Monthly Debt Update for December, as of December 3, 2025, total gross national debt stood at $38.40 trillion. That is $2.23 trillion more than a year ago and $11.00 trillion more than five years ago, and there are few signs that this trajectory will slow down.

In fact, the One Big Beautiful Bill Act (passed earlier this year) is likely to make the situation worse. According to estimates by the Congressional Budget Office, the law will add more than $2.4 trillion to the primary deficit over the next decade, increase total debt by nearly $3 trillion by 2034, and raise the debt-to-GDP ratio to around 124%, or even higher if the measures become permanent or interest rates remain high.

Another factor weighing on the dollar is concern that Trump may attempt to replace current Fed Chair Jerome Powell with a more loyal figure, which could undermine the Fed's independence. While the Federal Reserve's governance structure is designed to prevent direct political control, any credible attempt to politicize monetary policy would almost certainly erode confidence in the dollar.

That said, a weaker dollar is not all bad.

Dollar weakness tends to favor commodities, including gold, as well as U.S. stocks. A weaker currency makes gold cheaper for foreign buyers, boosting demand. At the same time, U.S. multinational companies benefit as overseas revenues translate into higher dollar earnings, helping lift indices and individual stocks. The downside is that a sharp decline in the dollar can fuel inflation…