MW Trump's tariffs are having a surprising impact on the U.S. dollar. Here's how investors can benefit.

By Joseph Adinolfi

The buck is weakening despite Trump's tariffs. To protect themselves, investors should consider buying shares of companies that do a lot of business abroad, SocGen says.

Popular economic models suggest that President Trump's tariffs should cause the U.S. dollar to strengthen against rival currencies.

But since Trump's inauguration, the opposite has happened, to the surprise of both Wall Street and the White House.

In year-ahead outlooks published a few months ago, strategists at J.P. Morgan and other large Wall Street firms had expected the dollar to continue to appreciate in 2025 as Trump's pro-growth economic agenda caused the U.S. economy to expand more quickly than its peers.

Treasury Secretary Scott Bessent said during his confirmation hearing that he expected a stronger dollar to offset much of the inflationary impact from the Trump administration's tariffs.

Yet, since peaking at a two-year high in early January, the ICE U.S. Dollar Index DXY - a closely followed gauge of the buck's strength against its main rivals - has declined. The index fell by nearly 4% during the first quarter.

Some currency-market experts said a weaker dollar could risk exacerbating the inflationary shock from the tariffs. Although any boost to prices would likely be a one-off effect, it could still inspire the Federal Reserve to delay further interest-rate cuts, said Brad Bechtel, global head of FX at Jefferies, during an interview with MarketWatch.

That would likely exacerbate the hit to stocks, economists say.

But some on Wall Street have proposed ways for investors to potentially take advantage of the weaker greenback, without even leaving the U.S. market.

How you should play it

If the dollar does continue to slide, then investors should consider buying shares of companies with heavy exposure to international markets, said Manish Kabra, head of U.S. equity strategy at Société Générale.

Kabra and his team recently devised a "peak-dollar" basket of 18 stocks that they said could be poised to outperform in such a scenario.

"The idea behind the peak-dollar basket is you want to buy companies that have more international exposure than U.S. exposure," Kabra said. He added that SocGen's currency strategists believe the euro $(EURUSD.FOREX)$ will strengthen to $1.20 by the end of 2025. The shared currency was trading at $1.09 on Wednesday, FactSet data showed.

SocGen's basket includes mostly financial-services, media and technology firms that derive a sizable chunk of their revenues from international markets like Europe. Firms like Morgan Stanley $(MS)$ were included, along with three members of the "Magnificent Seven" group of Big Tech names - Microsoft Corp. $(MSFT)$, Meta Platforms Inc. $(META)$ and Alphabet Inc. $(GOOGL)$ $(GOOG)$

For these companies, a sizable depreciation in the dollar could yield a 6% to 7% boost to earnings, Kabra said.

Tariffs bite

U.S. stocks have climbed since the S&P 500 SPX briefly entered correction territory last month. But they might not be out of the woods yet.

So far, Trump's approach to tariffs has caused investors and consumers to sour on U.S. markets and the economy, survey data have shown.

A team of economists at Evercore ISI said in a recent report that they believed Trump's decision to go big with the levies was likely weighing on the greenback by denting expectations for economic growth.

"It is this idea that the U.S. exceptionalism story is over now, and that growth is going to be impacted by all of these tariffs," said Jefferies's Bechtel.

Investors are still waiting for more evidence that this crisis of confidence will translate into a bump in unemployment or a rollback in consumer spending. Bechtel said investors will be closely watching Friday's March payrolls report for any signs of weakness.

But it isn't just the policies themselves that have weighed on stocks and the greenback. The haphazard way the administration has gone about implementing them has also taken its toll - testing investors' patience and making the process of gauging risk more difficult, said Michael Brown, a senior research strategist at Pepperstone.

"I'd argue that the issue isn't so much the policies themselves - tariffs, tax cuts, DOGE, etc. - but the incoherent and unpredictable way in which policies are being announced, tweaked, and then in many cases reversed, all in the space of a few days," Brown told MarketWatch via email.

"Not only does that make it next to impossible for consumers or business to plan into the future ... but it also makes it incredibly difficult for market participants to price risk," he added.

Some, including Deutsche Bank's George Saravelos, have warned that the Trump administration's decision to back away from relationships with longstanding allies might diminish the dollar's coveted reserve status.

Neither Brown nor Bechtel see any signs of this playing out yet. "There simply isn't a viable alternative to take over that mantle," Brown said.

However, some emerging-market countries have recently taken steps to diversify away from the buck by shifting more of their reserves into gold, Brown pointed out. This has helped fuel the yellow metal's staggering rally over the past 18 months that recently pushed the price of gold (GC00) to a record high.

The dollar continued to weaken on Wednesday as investors awaited Trump's "liberation day" tariff announcement. The ICE U.S. Dollar Index was down 0.4% at 103.80 in recent trade.

Meanwhile, U.S. stocks were higher in recent trade, having reversed earlier losses following reports that Trump has told his inner circle that Tesla Inc. $(TSLA)$ Chief Executive Elon Musk would soon take a step back from his advisory role in the government.

The S&P 500 was up 0.2% at 5,642, while the Nasdaq Composite COMP had gained 0.3% at 17,493. The Dow Jones Industrial Average DJIA was up by 12 points, or less than 0.1%, at 42,002.

-Joseph Adinolfi

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April 02, 2025 14:30 ET (18:30 GMT)

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