Dollar rally puts Trump treasury’s market intervention to the test

The US dollar experienced a significant rally in the past year, falling by 10% in 2022, its worst year since 2017, and continuing that trend into the new year. This surge was driven by strong US economic data, a hawkish Federal Reserve, and rising bond yields. The Trump administration's treasury, led by Secretary Scott Bessent, has been intervening in the currency and bond markets to counter the dollar's rise, but investors are now betting against the administration's efforts.

The dollar rebounded 6% since January, with momentum accelerating rapidly. The shift in the dollar's trajectory has raised questions about the administration's economic goals, such as revitalizing American manufacturing and reducing the trade deficit, which rely on a more competitive exchange rate. While foreign investors are not turning against the US dollar, the administration's interventionist methods in currency and bond markets are facing challenges.

The treasury's attempts to lower borrowing costs and manage market illiquidity have been met with limited success, as the scale and force of these interventions pale compared to past successful examples.