Official White House Photo by Daniel Torok
"I'd love to get the guy currently in there out right now, but people are holding me back" - Donald Trump.
The dollar will come under sustained pressure in 2026 says Commerzbank.
In a year-ahead FX outlook, economists at the German bank see USD underperforming as "risks associated with White House policy are likely to come into sharper focus" next year.
With tariff issues fading as a market concern, Commerzbank warns U.S. political considerations will still ping on investors' radars.
The primary concern is the Federal Reserve becoming politicised and, as a result, pursuing a more expansionary monetary policy than necessary.
"We in fact assume that the Fed will at least partially bow to pressure from the U.S. government to cut interest rates more sharply," says Commerzbank.
President Donald Trump has been forthright in his criticism of Federal Reserve policy, repeatedly attacking Fed Chairman Jerome Powell for the Fed's cautious approach to lowering interest rates.
"I'd love to get the guy currently in there out right now, but people are holding me back," Trump said Tuesday, November 18.
He has already installed loyalists to the Federal Open Market Committee (FOMC), the body tasked with deciding monetary policy. In an apparent two-pronged attack, he's also shown a willingness to target individual FOMC members, such as Lisa Cook, with a view to adding more of his own sympathetic replacements.
At the same time, existing members of the FOMC have been jockeying for Trump's favour by advocating the Fed cut interest rates further and faster.
Thus far, there has been enough pushback against this owing to inflation's persistence.
Commerzbank says the matter will come to a head when Chair Powell's term ends next spring and the president replaces him with a candidate who is more favourable to interest rate cuts.
Economists expect the central bank under a new Fed chair to lower interest rates more than the market is currently pricing in.
Fed funds futures show the Fed's key interest rate is currently seen at around 3% at the end of 2026, but Commerzbank expects it to be closer to 2.5%.
This implies the market is underpricing future rate cuts, which has significant implications for the dollar's path.
"One of the most important implications of this assumption is that the US dollar should come under significant pressure as a result," says Commerzbank.
We see a risk to this view being Trump's fear of inflation.
There are signs Americans are feeling the strain of still-high inflation, and this is reflected in poor polling for the Republicans and Trump's own popularity.
Trump could yet find he needs the Fed to help quash inflation. If so, it would amount to an easing in Fed independence fears and bolster the dollar.