Stronger dollar may hinder Trump’s economic plans

Associated Press

WASHINGTON

President-elect Donald Trump’s ambitious plans to revive exports, return jobs to the U.S. and increase oil drilling are running up against a home-grown threat: the surging U.S. dollar.

Since the Nov. 8 election, the dollar has shot up 5 percent. An index that tracks the dollar against other major currencies reached a 14-year high after the election before dipping a bit since then.

In part, the dollar’s gain reflects the U.S. economy’s strength and investor confidence that Trump will accelerate growth by slashing taxes and pumping money into roads, bridges and other infrastructure. The dollar could rise even more since the Federal Reserve has raised interest rates and foresees three hikes next year. With rates far lower elsewhere, many investors will shift money to the U.S. to capitalize on higher yields – a shift that could send the dollar higher.

Which creates a problem: An expensive dollar makes U.S. goods costlier overseas – and imports cheaper in the U.S. That’s a recipe for more pain for American manufacturers. A high dollar also can lead U.S. multinational companies to move operations to countries where their dollars go further.

A high-priced dollar tends to shrink oil prices, thereby discouraging the increased energy production that Trump has made a centerpiece of his economic plans.