Top Analyst: Expect Limited USD Upside as Trump's Policies Face Real-World Constraints
1min read Commerzbank forecasts a tempered outlook for the US dollar in the wake of the recent election, citing expectations that key policies proposed by President-elect Trump will likely be moderated in their implementation. The bank’s assessment suggests that while initial enthusiasm for Trump’s economic agenda might support some short-term USD strength, the broader scope for further appreciation is constrained by several factors.
One key point in the analysis is that import tariffs, a central theme in Trump’s campaign rhetoric, are expected to be less comprehensive than initially anticipated. This dilution could limit the tariffs' macroeconomic impact, especially on global trade dynamics and the competitiveness of US exports.
On the issue of immigration, Commerzbank predicts that while there may be some deportations, the scale of these actions is unlikely to induce significant wage pressures. Wage inflation, often tied to a constrained labor supply, is therefore expected to remain muted, further tempering inflationary expectations.
Commerzbank also highlights the Federal Reserve’s potential policy stance as a crucial factor. While Trump’s policies are inherently inflationary, the bank projects that the actual inflation impact will be limited. This would reduce the Fed’s need to implement aggressive interest rate hikes, which in turn diminishes a traditional driver of USD strength.
The bank’s EUR/USD forecast reflects this nuanced outlook. It projects the pair to dip to 1.05 by March 2025, driven by initial optimism for Trump’s economic measures. However, as the realities of policy implementation set in, the pair is expected to rebound slightly to 1.07 by the end of 2025, signaling a moderation of the dollar’s strength over the medium term.
The analysis underscores the market's challenge in balancing expectations with practical policy outcomes. While the election outcome has injected some near-term volatility, the tempered forecasts for USD strength reflect skepticism about the full realization of Trump’s ambitious policy agenda.
For investors, this outlook suggests that initial moves in favor of the USD may not sustain their momentum, with the euro likely to stabilize against the dollar as the impact of these policies becomes clearer. This perspective emphasizes the importance of monitoring policy execution and central bank responses over the coming quarters to better understand the trajectory of EUR/USD and broader currency markets.