The US dollar has seen significant strength this summer, surging about 13% since 2021. While a left-wing resurgence in France briefly tempered this rise, the dollar’s momentum remains robust, influenced heavily by the Federal Reserve’s actions.

The potential return of Donald Trump to the presidency could further impact the dollar and the stock market. Recent polls show Trump gaining an edge over President Joe Biden, a shift that could lead to the continuation or expansion of tax cuts and increased tariffs. During a recent debate, Trump reiterated his plan to impose a 10% tariff on all imports, a move that could increase inflation and complicate future interest rate decisions.

“US presidential polling has broken decisively in favor of a Republican win,” noted Lisa Shalett of Morgan Stanley Wealth Management. She highlighted that while stocks have been climbing, investors must consider the implications of Trump’s proposed policies, including tax cuts, tariffs, and stricter immigration controls.

Morgan Stanley research indicates that expanding the 2017 tax cuts could significantly boost deficits, driving the dollar even higher. The dollar’s strength is also buoyed by the US economy’s relative resilience amid high inflation and interest rates, contrasted with economic struggles in the eurozone, China, and Japan.

A strong dollar benefits American tourists abroad but poses challenges for multinational companies in the S&P 500, making US exports more expensive and reducing overseas profits. It also increases competition from cheaper imports. Despite high expectations for second-quarter earnings, concerns about the strong dollar’s impact on future profitability persist.

While a robust dollar lowers the cost of imported raw materials, it can also boost inflation and negatively affect foreign investments. As the economic landscape evolves, investors will closely monitor the implications of a potential Trump presidency on the dollar and the broader market.