President-elect Donald Trump's shock comment that the dollar is too strong suggests the U.S. is about to declare as dead a two-decade policy of publicly favoring a strong currency.
"There's no question that the Trump administration would not want a strong dollar. A strong dollar does nothing good for whatever Trump is basically trying to do," said David Woo, Bank of America Merrill Lynch's head of global rates and foreign exchange research. "Yes, the U.S. fundamental story is bullish for the U.S. dollar, but the problem here is they actually don't want a strong dollar. I think it's going to go up. However, it's going to be a much more volatile climb."
Trump's remarks also took a shot at one of the most crowded trades on the planet — long wagers on the dollar. That trade has been a bet that Trump's policies will reflate the economy, causing interest rates and the greenback to rise. But that dollar move is at odds with building a more powerful American manufacturing base, because a strong dollar makes exports more expensive for foreign buyers.
The dollar also threatens the economic health of emerging-market nations, as the cost of everything there rises, including servicing their dollar-denominated debt.