The dollar is losing value in spite of Trump’s tariffs. According to SocGen, investors should think about purchasing stock in businesses that conduct a lot of business overseas as a way to safeguard themselves.
The U.S. dollar should appreciate versus other currencies as a result of President Donald Trump’s tariffs, according to popular economic models.
To the surprise of the White House and Wall Street, however, the reverse has occurred since Trump’s inauguration.
As the U.S. economy grew faster than its peers due to Trump’s pro-growth economic plan, strategists at J.P. Morgan and other major Wall Street businesses had predicted in year-ahead outlooks released a few months ago that the dollar would continue to gain in 2025.
During his confirmation hearing, Treasury Secretary Scott Bessent stated that he anticipated a stronger dollar to counteract a large portion of the inflationary effect of the tariffs imposed by the Trump administration.
However, the ICE U.S. Dollar Index DXY, a frequently watched indicator of the strength of the dollar relative to its primary competitors, has fallen since reaching a two-year high in early January. The first quarter saw an almost 4% decline in the index.
A weakened dollar might potentially exacerbate the inflationary shock caused by the tariffs, according to some currency-market specialists. In an interview with MarketWatch, Brad Bechtel, global head of FX at Jefferies, stated that although if any price increase would probably be a one-time event, it might nevertheless encourage the Fed to postpone more interest-rate reductions.
Economists say that would probably make the stock market’s decline worse.
However, some Wall Street analysts have suggested strategies that investors could use to profit from the declining value of the dollar without ever leaving the American market.
How to play it
Manish Kabra, head of Société Générale’s U.S. equities strategy, advised investors to think about purchasing stock in firms that have significant exposure to foreign markets if the dollar does continue to decline.
A “peak-dollar” basket of 18 equities was recently developed by Kabra and his team, who claimed that these stocks may be well-positioned to outperform in such a situation.
“The idea behind the peak-dollar basket is you want to buy companies that have more international exposure than U.S. exposure,” Kabra stated. By the end of 2025, the euro (EURUSD) would have strengthened to $1.20, according to SocGen’s currency experts, he added. On Wednesday, the value of the common currency was $1.09, according to FactSet data.
The majority of the companies in SocGen’s basket are in the media, technology, and financial services sectors, and they get a significant portion of their income from foreign markets like Europe. Included were companies such as Morgan Stanley (MS) and three of the Big Tech giants known as the “Magnificent Seven”: Microsoft Corp. (MSFT), Meta Platforms Inc. (META), and Alphabet Inc. (GOOGL) (GOOG).
According to Kabra, a significant decline in the value of the dollar may increase profits for these businesses by 6% to 7%.
The bite of tariffs
Since the S&P 500 SPX momentarily entered correction territory last month, U.S. stocks have increased. However, they may still be in danger.
According to survey data, Trump’s tariff policies have so far soured the U.S. economy and markets among consumers and investors.
In a recent analysis, a group of economists at Evercore ISI stated that they thought Trump’s decision to impose large tariffs was probably hurting the dollar by lowering GDP projections.
“It is this idea that the U.S. exceptionalism story is over now, and that growth is going to be impacted by all of these tariffs,” said Jefferies’s Bechtel.
More proof that this crisis of confidence will result in higher unemployment or lower consumer expenditure is still needed by investors. Investors will be eagerly monitoring Friday’s March payrolls report for any indications of deterioration, according to Bechtel.
However, equities and the dollar have been impacted by more than just the policies themselves. According to Michael Brown, a senior research strategist at Pepperstone, the administration’s disorganized approach to putting them into effect has also had a negative impact, trying investors’ patience and making it more challenging to assess risk.
“I’d argue that the issue isn’t so much the policies themselves – tariffs, tax cuts, DOGE, etc. – but the incoherent and unpredictable way in which policies are being announced, tweaked, and then in many cases reversed, all in the space of a few days,” Brown told BourseWatch via email.
“Not only does that make it next to impossible for consumers or business to plan into the future … but it also makes it incredibly difficult for market participants to price risk,” he stated.
Some, like George Saravelos of Deutsche Bank, have cautioned that the dollar’s desired reserve role may be weakened by the Trump administration’s intention to sever ties with traditional friends.
Neither Bechtel nor Brown anticipate this happening anytime soon. “There simply isn’t a viable alternative to take over that mantle,” Brown stated.
Brown said that some emerging-market nations have recently moved to diversify away from the greenback by increasing their gold holdings. This has contributed to the breathtaking 18-month surge in the yellow metal, which has just driven the price of gold (GC00) to a record high.
As investors anticipated Trump’s “liberation day” tariff announcement, the dollar continued to decline on Wednesday. In recent trading, the ICE U.S. Dollar Index was down 0.6% at 103.69.
Following rumors that Trump informed his inner circle that Tesla Inc. (TSLA) CEO Elon Musk will shortly step back from his advising role in the administration, U.S. stocks ended the day higher, reversing previous losses.
At 5,670, the S&P 500 was up 0.7%, and at 17,601, the Nasdaq Composite COMP was up 0.9%. At 42,225, the Dow Jones Industrial Average (DJIA) increased 235 points, or 0.6%. However, after Trump’s tariff announcement, stock futures fell.
