Happy Lunar New Year! Wishing everyone prosperity, health, and success in the Year of the Snake!

On January 20, Donald Trump was sworn in as the 47th President of the United States, ushering in a "2.0 era." He wasted no time overturning dozens of executive orders from the previous administration, withdrawing from the Paris Climate Agreement and the World Health Organization, and announcing plans to impose tariffs on Canada and Mexico in the near future. With the experience of his previous term, Trump is determined to "Make America Great Again," though the results remain to be seen. Regardless, the rise of far-right populism in Western countries suggests that significant changes in the global political and economic landscape may be on the horizon. The year 2025 is shaping up to be a year full of uncertainties, with risks and opportunities closely intertwined. Striking a balance between the two will be crucial.

Since Trump’s victory in November, the US Dollar Index (DXY) has been on a strong upward trend, rising from 103 to 110 by mid-January. This rally was driven not only by market expectations of Trump injecting new momentum into the US economy but also by monetary policy trends and underlying economic fundamentals, which were discussed in a previous article. However, in the week leading up to Trump’s inauguration, the Dollar Index reversed course after touching 110, retreating below its 50-day moving average and briefly dipping to the 107 level. This correction was not due to changes in US economic fundamentals or monetary policy but was more of a technical adjustment and a classic "buy the rumor, sell the fact" market reaction. Trump's remarks at the World Economic Forum in Davos last Friday further fueled the decline. He stated that with oil prices falling, he would urge the Federal Reserve to cut interest rates quickly, adding that other central banks should do the same. This marked Trump's first official stance on monetary policy since taking office.

The Federal Reserve enjoys significant independence and is unlikely to shift its monetary policy stance based on Trump's comments alone. The upcoming January Federal Open Market Committee (FOMC) meeting is widely expected to maintain the current policy. As I’ve mentioned in past media interviews, Trump, being a businessman, favors low-interest rates and is not a strong supporter of a strong dollar. His recent remarks confirm this stance, which could create some challenges for the dollar's strength in the future.

During his first term, Trump often criticized Fed Chair Jerome Powell’s policies and even considered replacing him with someone more compliant. However, due to legal constraints, it is unlikely Powell would leave before his term expires next year. It’s also important to note that exchange rates are influenced more by economic fundamentals than by one person’s preferences. Currently, the US economy remains stronger than most other developed nations, and unless Trump continues to talk down the dollar, the Dollar Index should find support near the 107 level.

Patrick Law

Chief Operating Officer of Hantec Group