Trump speaks, the dollar shakes

It remains to be seen which way things will go. But if US President Donald Trump speaks tonight, he'll set the dollar in motion again. Meanwhile, a clear undercurrent is emerging in the world of currencies.

US President Donald Trump is known for speaking his mind without first fully considering it. When he goes off the rails, it has a significant impact on financial and currency markets. The most recent example is his response to the US Supreme Court ruling that the import tariffs he announced in April 2025 are invalid. Instead of considering how he could approach things differently in the future, he immediately announced a 10% blanket import tariff for all trading partners. A day later, he even raised that tariff to 15%.

Tradition since 1913
If Trump shoots from the hip in these kinds of setbacks, it will be especially interesting to hear what he says when he's expected to speak. That will happen tonight during the State of the Union address. Since 1913, the American president has updated Congress annually in a special address. A year ago, Trump anticipated the end of the war in Ukraine and projected improved economic growth. Meanwhile, the end of the war is not yet in sight, and the US growth rate in the fourth quarter recently dropped to just 1,4% annualized. So, Trump's words tonight don't necessarily have any predictive value.

Starting signal for dollar decline
That doesn't mean they can't have a significant impact on the currency world. A year ago, the State of the Union address marked the start of a period in which the dollar fell by 10% against the euro within four months, partly due to significant trade uncertainty. While a repeat of this slide is unlikely, major dollar fluctuations appear to be on the horizon. On the one hand, a comment from Trump about his influence at the Federal Reserve or about new trade tariffs could impact the dollar. On the other hand, a hint of an attack on Iran could cause parties to seek the safety of the US currency. In the run-up to the midterm elections, Trump must carefully weigh his words.

Strong undercurrent
Among American voters, his approval rating has fallen from 48% to 36%. On currency markets, traders are already making their voices heard. The number of short positions, speculating on a depreciation of the US currency, has grown to its highest level in fourteen years, according to an analysis by Bank of America. The past year has made it clear that Trump's pronouncements—from his plan to annex Greenland to the threat to drastically reduce the United States' NATO contribution—are short-lived. But the growing number of short positions indicates that the uncertainty he is creating has triggered a significant undercurrent from the dollar. And the upcoming State of the Union address won't change that.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.