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Here is the ultimate widow maker deal: the reserve currency situation that dumps the dollar is about to end.
Counting Age speculators regret that in the past 30 years, it has been the center of the short-circuit financial universe. During the Asian and Russian financial crisis between 1997 and 1998, investors wanted to know that overly aggressive Fed tightening could trigger a collective shift from above the dollar.
Anger at the U.S. invasion of Iraq in the early 2000s seemed to endanger the role of the dollar in finance and trade. At the time, economist Joseph Quinlan, who was then with Bank of America Merrill Lynch, warned that then-President George W. Bush's “rogue state” policy could undermine confidence in the dollar.
Then there is the 2008-2009 Lehman Brothers crisis. At the time, economist Nouriel Roubini talked about a “nightmare difficult place” that would cause the market to “give up the dollar” before and after 2008.
The Fed's “taper tantrum” in 2013 is another dangerous moment for the dollar. The same is true of today’s latest trade war against Trump and what his tariffs mean for global trade. In addition, there is chaos surrounding Trump's possible or possible implications for tariffs, targets and reasons.
The turbulent bull market radiating in Washington raises questions about whether chaos and volatility are targets here, not just side effects.
It's not that policy is not their own problem. Last week, Trump did not hunt down the Fed because he didn't want to lower interest rates. Trump urged Fed Chairman Jerome Powell to “do the right thing” by relaxing his identity, despite U.S. inflation approaching 4%.
During Trump's presidency from 2017 to 2021, he forced the Federal Reserve to ease as soon as possible. His team even said it might fire Powell. The Trump 2.0 gang has voiced a voice on restricting autonomy that gives the Federal Reserve global credibility.
Trump 2.0 also appears to have hurt the currency war due to tariffs. Trump said earlier this month he warned leaders in China and Japan against beggar neighbors.
“I called Xi Jinping, I called the Japanese leader and said you can't continue to reduce and break down the currency,” Trump said. “You can't do that because it's not fair to us. It's hard for us to make tractors, caterpillars here, when Japan, China and elsewhere kill their currency, which means deporting it.”
Trump pointed out that Washington's reaction may be tightening the screws more through trade curbs. He said: “So all these things add up.
To be sure, Trump has said in the past that he wants to weaken the dollar to promote U.S. manufacturing. In April 2024, some senior Trump advisers, including former trade chief Robert Lighthizer, began to hint at plans to devalue the dollar.
Since Lighthizer Acolyte Jamieson Greer is now Trump's trade representative, it may be wise to at least consider the possibility that the White House could unilaterally reduce the value of the dollar.
Regarding the “New Plaza Agreement”, it also aroused people's cheers. The reference here is a 1985 currency transaction signed by a New York agency that Trump once owned.
Then-U.S. President Ronald Reagan began his second term with Mercantilist Gambit, who still inspired Trump. In the mid-1980s, Reagan's Treasury Secretary James Baker managed to strengthen the most powerful industrialized countries to make the yen higher and the dollar lower.
In the early days of Trump's presidency, advisers such as then-Treasury Secretary Steven Mnuchin and Peter Navarro hinted that the agreement would be updated to soar the Chinese yuan.
China will definitely refuse. President Xi Jinping's Communist Party understands how the square's deal caused Japan's asset bubble in the late 1980s, causing decades of stagnation. With economists buzzing about China's risk of “Japanization”, the chances of Xi Jinping entertaining the yuan to make Trump happy are low.
Meanwhile, U.S. national debt is heading towards a $37 trillion trademark and Trump suggests that the new tax cuts are not good news for Washington's credit rating. There is only one AAA rating left in the United States. The risk that Moody's investor service could evacuate it has put Asian central banks in a near-Taiwanese model at nearly $3 trillion.
None of this ensures that the trade from widow-makers suddenly turns the dollar to the winner. But with our speech, the chances of the dollar stumble this year may be awful.
