Who will come to cool down the "epic surge" of the US dollar?

If you want to find the biggest contradiction in Trump's policies this year, it may be "not the US dollar". Although Trump expressed a preference for a "weak dollar" more than once during his campaign, from market reactions, the dollar has reversed its tendency to be weak at the end of the year and early this year, with a significant increase since December last year. How much longer can the dollar rise? Is Trump really "unworried"? According to the "muscle memory" from 2016 to 2017, the dollar may have already peaked. The dollar may be the asset that best fits Trump's previous term in office (from October 2016 to January 2017). Interestingly, the dollar peaked at the beginning of January 2017. Will the dollar repeat the pattern of rising and falling after reaching a high? It is likely, but it will take some time and an opportunity. Undoubtedly, the current appreciation of the dollar has good timing and favorable conditions. On one hand, Trump's inauguration is imminent, and as long as policies have not been implemented, there is ample room for imagination - whether in terms of growth or inflation; on the other hand, as the biggest "opponent" of the dollar, the current situation in Europe is not so good, with both economic growth "problems" and the political uncertainty in core countries like Germany and France. Moreover, from the perspective of futures positions, the market sentiment for going long on the dollar is not extreme. The turning point for the dollar will still take some time. However, we believe that this turning point will not be too far away, and looking ahead, we believe that the following main themes will become key macroeconomic clues for pricing: First is positioning under the macro narrative. The macro narrative is not good at timing, but it can provide a reference and positioning for the current asset prices. Looking back at the past decade's market trends, several points are quite clear: The upward shift in the central system of the dollar reflects changes in the global landscape, which are difficult to reverse in the short term. After 2020, among the major economies, China and the EU are both facing significant structural transformations, while the US, after a major stimulus, has better economic resilience, and currently lacks the conditions to reverse this situation and push the dollar index below 100. The dollar index in 2025 (in a narrow sense) may not have the conditions to break the high point of 2022. The dollar index briefly touched a high of 114.8 in September 2022. At that time, at least three conditions were not present: the conflict between Russia and Ukraine and the resulting impact on global supply chains and liquidity; the unprecedented rate hikes by the Federal Reserve and policy and personnel changes in China. To refresh the dollar index to a new high in nearly 5 years in 2025, unless... Trump radically imposes global tariffs and the Federal Reserve reconsiders rate hikes. At least for now, the likelihood of these two points coming true is not high. Second, behind the potential disruption of Trump's new policies may not want a too strong dollar. We do not doubt Trump's proactive fiscal "label", but under various "want it and want it" scenarios, at least in the early stages of governance, fiscal policies may show a relatively counterintuitive bias towards "tightening". The core contradiction of Trump's policies lies in the emergence of different positive feedback mechanisms, ultimately leading to policy failure and market turmoil. For example, a stronger dollar may help solve the sustainability issues of US debt (foreign purchases of US bonds), but seeking trade balance under a strong dollar may lead to more tariffs, resulting in more inflation expectations and higher long-term interest rates, further causing turmoil in the US debt market and affecting stock and other markets. How to break the impasse? Solve the core issues. For Trump, apart from immigration, controlling inflation and stabilizing the US bond market may be the most important issues in the early stages: on one hand, considering a shift towards relatively tight fiscal policy and loose monetary policy. The Federal Reserve cannot continue to tighten, controlling the overall level of US bond rates; fiscal policy can take advantage of the time window of the debt ceiling, with the help of Musk's DOGE (Government Efficiency Department) and not renewing some short-term maturing debt, temporarily shifting towards tightening. The combination of tight fiscal policy and loose monetary policy is negative for the dollar. On the other hand, using tariffs to exchange for "US bond purchases," and non-depreciation of non-US currencies. In the new term, tariffs may gradually become an important bargaining chip for the US in negotiations. In addition to exchanging for imports from other countries, demanding non-US economies to purchase more US bonds to help stabilize the US bond market and prompting non-US currencies to not depreciate relative to the dollar, or even appreciate, to achieve comprehensive effects of trade rebalancing and manufacturing recovery, are good options for the Trump administration. Third, looking at the dollar should not only focus on the dollar itself. Non-US, especially Europe and China, may see marginal changes that are negative for the dollar in the first quarter to the second quarter: on one hand, Europe's turbulent situation may show positive or stable signals, including the situation in Russia and Ukraine, Germany's general elections (February 23), and so on; on the other hand, China may strive to prevent economic inertia from declining in the first quarter to the second quarter. In conclusion, our bullish view on the dollar is cautious, and the trend of the dollar rising and then falling is "inevitable." We expect this turning point to occur in the first quarter. The high point may be above 110, but it will not reach the high point of 2022. Of course, the trend of the dollar in the second half of the year may be more complex, requiring further tracking. For the renminbi, the pace in the first half of this year may also be different. This week, the renminbi broke through the constraint of 7.30 against the dollar, and the traditional Spring Festival currency remittance tide has not yet appeared. Generally, the renminbi exchange rate often shows a trend of appreciation in the first quarter and increasing pressure in the second quarter. This year's situation may be the opposite, with a different "landscape" after passing the initial pressure period of the year. Risk warning: The policies of the new US president's term exceed expectations, leading to a significant global economic slowdown, and the US dollar index appreciates more than expected; unexpected geopolitical fluctuations lead to liquidity problems causing the US dollar to rise more than expected. This article is sourced from a macro research report released by Minsheng Securities, and the author is analyst Shao Xiang; GMTEight Editor: Wenwen.