Dollar's Trump-Fueled Rally Unites Wall Street on Bullish Bets

The US dollar’s rally is gaining momentum a week after Donald Trump’s presidential victory, wreaking havoc on other currencies and pushing Wall Street strategists to brace for further gains.

(Bloomberg) — The US dollar’s rally is gaining momentum a week after Donald Trump’s presidential victory, wreaking havoc on other currencies and pushing Wall Street strategists to brace for further gains.

The Bloomberg Dollar Spot Index rose on Tuesday for a third-straight session to its strongest level in a year — and just shy of its highest since 2022. The US currency’s advance is sending major foreign-exchange rates sliding, with the euro, yen and Canadian dollar weakening toward key psychological levels.

“We see a good chance of substantial dollar strength through next calendar year and potentially into 2026 as well,” said Helen Given, a foreign-exchange trader at Monex. “A Trump administration changes the calculus on forecasting in a very material way as domestic policy points to a big spending spree and international policy is likely to be quite protectionist.”

Across Wall Street, strategists have united behind calls for a stronger dollar in the days since Trump’s reelection and as the House of Representatives moves closer to joining the Senate in being controlled by Republicans. JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. all expect the greenback to keep climbing from current levels, according to recent strategy notes.

“The election outcome amplifies the US dollar exceptionalism,” JPMorgan strategists led by Meera Chandan wrote. “No other currency has what the dollar has: superior growth and equities, higher yield, defensive attributes.”

JPMorgan says the sentiment shock around Trump’s win is enough to boost the greenback, even with no official tariff announcement. While the dollar’s path is unlikely to be a straight line given the lack of visibility about the timing of Trump’s policies, Chandan sees the gauge of the greenback strengthening as much as 7% in coming months. That will send the euro toward parity with the greenback and the yuan nearing 7.40 per dollar.

At Goldman, strategists including Kamakshya Trivedi said it’s the policy proposals that will fuel the currency. Although the dollar strength is far from guaranteed, even with protectionist measures on the table, the magnitude of additional gains may vary depending on counter-stimulative measures from other countries. 

Strategists at Barclays Plc and Brown Brothers Harriman & Co. are similarly wagering little can get in the way of sustained dollar rally. They argue that on top of Trump’s policy agenda, economic momentum has also shifted back in the greenback’s favor, with traders paring bets on the extent of the Federal Reserve’s interest-rate cutting cycle after officials avoided clear guidance on the timing and speed of additional reductions.

“At the moment, it’s very difficult to make an argument against the dollar,” said Andreas Koenig, head of currency management at Amundi, who increased his long US dollar position after last week’s vote. “The result of this election seems to be positive for the US and for the dollar, and negative for all other countries, especially Europe.”

The euro has emerged as one of the most vulnerable currencies to the dollar’s strength, given the region’s export reliance, exposure to China and already anemic economic growth. Several banks have slashed their forecasts for the common currency since the US election, with many seeing a risk of a slide toward parity against the dollar next year. 

On Tuesday, the euro weakened as much as 0.5% to $1.0602 — within a hair of its weakest level in a year. The yen, meantime, slid as much as 0.6% to 154.6 per dollar, just shy of the psychological 155-per-dollar level. And Canada’s dollar fell for a third day, edging close to its weakest in four years against the greenback.

All the weakness across foreign-exchange markets so far bodes well for the dollar. Options trading and the latest positioning data suggest traders also are betting on further gains in the US currency, with bullish sentiment on the greenback over the next year is the strongest since early July. 

Hedge funds added to their net long dollar exposure in the run-up to the election, according to Commodity Futures Trading Commission data. To Citi, such strong positioning is a reason to buy any dips on the dollar to express a bullish view, rather than chasing the rally. 

“The baseline for the US is strong growth and a less dovish Fed, implying dollar strength that Trump adds to,” said Skylar Montgomery Koning, a currency strategist at Barclays Plc in New York. “The direction of travel for a stronger dollar is clear, the extent of strength will depend on actual policy delivery.”

—With assistance from Vassilis Karamanis, Naomi Tajitsu, Carter Johnson and George Lei.