For decades, there's been one currency that has fueled the global economy, the US dollar. From Singapore to London to New York, business is done in good old American greenbacks. And why do they choose a dollar? Well, it's kind of like why does everybody speak English in a business meeting overseas? Because everybody else speaks English, right? It's kind of like almost through force of habit. Our colleague Greg Ipp is the journal's chief economics commentator. Everybody has agreed that things are simpler if you agree to do business in the English language or in the dollar. And over the last ten years, how would you say the dollar has been doing? So from around 2014 through the first few months of last year, 2025, the dollar generally rose. It was a very strong performing currency. And that was at a time when the US economy was also performing quite strongly. Such a strong dollar has meant it's been cheaper to do business with it around the world. And it shows a lot of faith in the American economy. There was a gesture of confidence in the United States. It was kind of like a report card, right? It was kind of like whether or not you actually have to go out and buy anything in another country. It's kind of nice that the world is saying these nice things about you and that your currency is strong. But in the last year, and especially over the last few weeks, the dollar has been on a downtrend. Let's talk about dollar weakness. It did see a dramatic drop over the course of a Tuesday trading, a huge spike in gold, and a huge plunge in the US dollar. The dollar losing its strength has got some economists worried. But one person who's not so worried is President Donald Trump. Value of the dollar. Do you think it's declined too much? No, I think it's great. I've been the value of the dollar. Look at the business with the dollar. No, dollars doing great. What does it support for a weaker dollar say about Trump's approach to the global economy? I think that to those who believe, well, you have a responsibility as the guardian of the dollar to maintain its institutional supports. His response would be, I was elected president of the United States, not president of the world. Welcome to the journal, our show about money, business, and power. I'm Jessica Mendoza. This Tuesday, February 3rd. Coming up on the show. The dollar is getting weaker. Is that a good thing? This episode is brought to you by Vanta. Security and compliance done wrong is a headache. Done right? You build trust and grow faster. That's Vanta. For startups, Vanta acts as your first security hire, using AI to get you compliant fast. For enterprises, it's your AI-powered hub for compliance, risk, and automating workflows. From startups like Kerser to enterprises like Snowflake, top companies choose Vanta. Do security and compliance right? Get started today at Vanta.com. First of all, Greg, what does it mean to say that the dollar is weak? It just basically means that the exchange rate value of the dollar against other currencies like the Japanese yen, the euro, the Canadian dollar has been declining. That's all we mean by a weak dollar. And is that strength or weakness based on tangible economic factors or just vibes? It depends on a lot of factors. It can depend on financial factors. For example, if interest rates are higher in other countries than in the United States, people may want to put their money in other currencies. It can depend on economic factors. If the economy in the United States looks weak and the economy so overseas looks strong, people might want to invest abroad where the returns are better. And it might reflect things like policy actions such as intervention by central banks to buy sell currencies, although that doesn't happen very often. And sometimes, yeah, it's just vibes. People feel good or bad about a currency or a country. A strong dollar is more than just a sign of approval for the American economy, though. That's because the dollar has a special role around the world. It's what's known as a global reserve currency. Although there are other ones, the pound, the euro, the yen, the dollar is dominant. And that puts a lot of pressure on the US to keep the dollar stable. The whole world is counting on it. You have to understand that the US has the strongest economy in the world, and as the issue of the reserve currency of the world has a certain responsibility attached to that, and that's to maintain a financial system that everybody around the world trusts. And part of that is promising that you're not going to arbitrarily drive down the value of the dollar. For example, by running a very high inflation rate, which tends to drive down the real value of your currency. Over the years, American presidents have endorsed a strong dollar, as part of that responsibility to the global financial system. We must protect the position of the American dollar as a pillar of monetary stability around the world. The United States does want a strong dollar. We believe in the importance of fundamentals in our economy. This government is for a strong dollar, and that the dollar's value ought to be set by the market. I'm not concerned about the strength of the dollar. I'm concerned about the rest of the world. Does that make sense? Can we explain that? Yes. Our economy is strong as hell. Status quo began a change after Trump started his second term. Around March or April last year, that stopped and the dollar fell. And so what we've seen since then is a weakest trend. I mean, it falls. It's letting that fall some more. Strongly, we are seeing the Bloomberg dollar index at the lowest level since December of 2020. Let's take a look at the dollar. It is down more than 8% for the year to date, just over 8.5%. It's trading near three year lows. There are a few things Trump has done that have impacted the value of the dollar. First, they're the tariffs. The Trump administration imposed the highest tariffs on America's trading partners in more than a century. Trump wants Americans to buy American goods and fewer imports from overseas. If you want your tariff rate to be zero, then you build your product right here in America because there is no tariff if you build your plant, your product in America. But the tariffs also upended global trade almost overnight. By imposing tariffs on the rest of the world, he's kind of shocked the rest of the world who they were used to thinking of the United States as kind of the guardian of what we call the rules-based international order. The country that made sure everybody else played by the rules, the rules of trade, the rules of international diplomacy. But here is the United States that sort of Earth will hedge them on. And instead of saying everybody treat each other nicely and played by the rules, it's kind of like quote-unquote breaking the rules by hitting everybody with tariffs, saying, we're now only looking after our industries first. The second way Trump has shaken up the rules-based international order is his foreign policy. For example, his desire to annex Greenland, a part of the Kingdom of Denmark, which is part of the EU, one of America's largest trading partners. We are going to do something on Greenland whether they like it or not. Greenland Mark is part of NATO, like the United States, where military allies. So the idea that the United States would forcibly seize territory from an ally was unearthed. All of this creates uncertainty, and markets hate uncertainty. The third thing Trump has done that Greg says might be contributing to a weaker dollar is interfering with the Federal Reserve, pushing for lower interest rates. I want somebody that when the market is doing great, interest rates can go down because our country becomes stronger. See if you would differently. Our country becomes stronger, and therefore interest rates should go down and not up. It's been highly unusual, and for some investors unsettling, to see a sitting president try to influence the Fed, which is supposed to be an independent central bank. I can't draw a direct line between Trump's pressure on the Fed and what's happening to the dollar, but I think that the Federal Reserve, I mean, the Federal Reserve is, after all, the central bank that prints dollars, right? And to the extent that anybody's in charge of maintaining the integrity and the purchasing power of the dollar, it's the Federal Reserve. And if you see that the president is trying to weaken its independence, sure, that is absolutely a reason why you might be a little more reluctant to own dollars. And so that sort of collection of events suggests that the United States is going in a direction where it cares less about the established rules of order, the stability of its institutions like the central bank, and other countries responded to that, and investors responded to that by saying, if this is the direction the United States is going in, maybe I don't want to own the dollar. Maybe it's a little less safe than I used to think it was. So tariffs, heightened geopolitical tensions, interfering with the Fed. Greg says all these things had the side effect of bringing in certainty to the US economy, which then caused the dollar to drop. Trump has signaled for years, at least since 2017 during his first term, that he kind of wants a weaker dollar. Trump says the dollar is getting too strong and that there may actually be downsides to a strong dollar. He said this during an interview with the journal, quote, I think our dollar is getting too strong and partially that's my fault because people have confidence in me, but that's hurting that will hurt ultimately. Then a couple weeks ago during a huddle with reporters, Trump said something similar. When he was asked about the weak dollar, he said that's great. And that kind of like is a fairly important sign that he doesn't mind having a weaker dollar. So what's Trump's case for a weaker US dollar? That's after the break. Could AI help you do more of what you love? Workday is the next Gen ERP powered by AI that actually knows your business. We help you handle the have to do's so you can focus on the can't wait to do's. It's a new workday. Okay, journal listeners, you've probably been paying attention to tariffs and Greenland and all the drama with the Fed. But the real e-con heads have also been paying attention to the decline of the Japanese yet and recently. In the last few weeks, US officials have been in talks with their Japanese counterparts. Here's Treasury Secretary Scott Besent. And I've been in touch with my Japanese economic colleagues and I'm assured that they will take measures to stabilize that market. Greg says those talks are important to this story because it's the clearest sign yet from the Trump administration that it may be directly trying to weaken the dollar. Japan's currency, the yen, came under a lot of downward pressure. And the US Federal Reserve started making inquiries that were taken as a sign that the United States might actually intervene in markets to sell dollars in exchange for yen, which would have made the yen stronger against the dollar. And while the main reason was because the Japanese and the Americans are worried that the yen is getting too weak, it was also a subtle signal that the United States might have thought that the dollar is too strong. The US government intervening to help strengthen the Japanese yen would be an incredibly rare move to be clear. An intervention has not happened. And when Besent was asked if the US was looking to boost the Japanese currency, he said, quote, absolutely not. Still, it's something investors have been speculating about. So I asked Greg, why would the US want to help out another country like Japan with their currency? He says, for one, it's helping out an economic ally. And Japan worries that two week a yen would contribute to inflation. But also, the US has a major trade deficit with Japan. We import more stuff from them than they buy from us. A stronger yen, plus a weaker dollar, could help balance out that deficit. It was sort of a sign. It was kind of like the body language. Wow, these guys kind of want dollar to be lower. Or at least they don't mind if it goes lower. So where are Trump and his administration coming from when they seem to suggest that they want a weaker dollar? Well, I think as we all know by now, Trump really doesn't like trade deficits. He wants to get rid of the trade deficit. He wants to reshore manufacturing. And he sees a strong dollar as being an obstacle to that. And so he thinks about the dollar first and what does it mean for domestic constituencies, local manufacturers, local businesses, and so on. He doesn't really think that much about whether or not it's a support of the US financial system. For consumers in the US, having a strong dollar compared to other currencies means that their dollar goes further when they buy foreign goods. So a strong dollar encourages more imports from other countries. And if you're a business here in the US, if you happen to do business in the United States, let's say you're a manufacturer and the dollar is strong against other currencies, a strong dollar actually makes your life a little bit harder. Imports are cheaper, so you have tougher time competing at home. The same dynamic also applies abroad. If you want to export, a strong dollar basically raises to your price in foreign markets and it makes it harder to compete. So all else equal, a strong dollar tends to lead to weaker exports, more imports, and a bigger trade deficit. So in kind of a break from the past, President Trump does not go around saying we should have a strong dollar. He actually kind of says the opposite, a strong dollar is a problem. Hmm. It does sound like the way he thinks about the dollar is in line with his broader kind of America first agenda. Exactly. So if past presidents thought that rhetorically supporting a strong dollar was part of the US global role, Trump doesn't think so much about any responsibility the US has for the rest of the world. He only sees the US as having responsibility to itself. Okay, so we've talked about why Trump is seems to be generally okay with a weaker dollar and the benefits that he sees in that. But what are the downsides of the dollar getting weaker? Where would that be most felt in the economy? Well, first of all, some imported goods are going to cost a bit more because they are denominated in foreign currencies and when he translates that back in a dollar, the price goes up. Basically, having a weaker dollar risks raising inflation. Secondly, a lot of international commodities are denominated in dollars like oil, like gold, like aluminum, like copper. And what you tend to see is that when the dollar goes down, those commodity prices go up. In fact, you see exactly that happening in the last week or two, you've seen gold up, oil up, copper up, all those things. I've heard gold referred to as the anti dollar. How tied together is the rise of gold in the drop of the dollar? If you are worried that the dollar is not going to be a secure store of value, if you're a foreign investor, for example, and you're worried that the dollar will not be a secure store of value in the future, what do you turn to? Well, you could buy euros, you could buy Japanese yen, but you could also buy gold. And that does seem to be what we're seeing here. Is that some people who are worried about the security of the dollar are buying gold? Another possible downside of a weaker dollar is that it could hit the US bond market. Investors all over the world buy US bonds, basically an IOU from the US government. The bonds are sold at a pretty low interest rate, because investors have a lot of faith in the US government's ability to pay out when due. Bonds are considered the safest investment out there. But a weak dollar and a more volatile economic plan jeopardizes that deal, making bonds less appealing to many investors. The United States might have to pay higher interest rates on its debts, on its treasury bonds, to get people to buy them. And because the Treasury yield is sort of the benchmark interest rate for the whole economy, everybody in the United States would end up being penalized for that. To be clear, Greg says any inflationary effects from having a weaker dollar would be very subtle, and not immediately noticeable. But I think that what we can say is that over time, the interest rates that Americans pay will be a little bit higher than they otherwise would have been because of this loss of confidence in the dollar. Right. Those risk-free bonds not being so risk-free anymore. Exactly right. So if the Treasury used to have to pay 4% on a 10-year bond, maybe they pay 4.1% or 4.2%. So not a big amount, but every little bit counts. Could we be looking at the beginning of the end of dollar dominance? People say that, and I just don't buy it. You know what I mean? Go back to my analogy of English. Right. Why do people speak English because there's no alternative? Right. If people all decided they didn't want to use a dollar, well, what would they use? The Chinese Remind me, I don't think so. China's not exactly more trustworthy than the United States, and they tightly control the currency. So it's not even clear you can buy and sell as much as you want. You know, the old saying about like the best-looking horse in the glue factory, that's kind of like the US dollar, right? It still looks better than all the alternatives. So I do not see the end of dollar dominance anytime soon. Maybe just more of a D dollarization, a little bit of a move away from it. I can see the exchange value moving down over time, but the fundamental value of the dollar as sort of the key currency that people use to transact in, to store the extra money in, that role is not going away. Any faster than the role of English as being the lingua franca of the world is going away. That's all for today, Tuesday, February 3rd. The journal is a co-production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.
