Trump may launch a campaign to weaken the dollar and trim the US trade deficit, analysts say

The United States of America, a currency manipulator?

It’s a label more frequently slapped on developing export economies and one that President Donald Trump took up just this week to browbeat China and Europe in his increasingly pitched trade war.

But as outlandish as it sounds, some Wall Street observers say the possibility that Trump himself will launch a sustained campaign to weaken the dollar as a way to reduce the US trade deficit cannot be dismissed.

“The trade debate will increasingly include the currency issues,” said Charles Dallara, a former US Treasury official and one of the architects of the Plaza Accord, the 1985 watershed agreement between the US and four other countries to jointly depreciate the dollar. “It’s inevitable.”

Granted, Dallara did not specifically use the word manipulation. There’s something of a reluctance among analysts to associate the US, the standard-bearer for free-market principles, with the term. They prefer to refer to it as foreign-exchange intervention. Semantics aside, a shift to a more protectionist and interventionist policy, à la 1985, would not only reverberate across the US$5.1 trillion-a-day currency market and undermine the dollar’s status as the world’s reserve currency, but could also weaken demand for US assets.

Since falling toward a three-year low in April, the dollar has appreciated almost 6 per cent, according to the Bloomberg Dollar Spot Index. Its advance last quarter was the strongest since 2016, as the US dollar appreciated against all 16 major currencies. The dollar is also 11 per cent above its average over the 13-year span of the dollar index.