LB Macro: Trump's Political Setback May Actually Support the Dollar
nashnova research
Hedge-fund adviser Luigi Buttiglione argues the market misread the Democratic sweep — a politically weakened Trump gives the Fed more room to stay hawkish, which should push the dollar higher, not lower.
Why might the market's first reaction be wrong?
After Democrats swept Congress, traders' instinct was clear: less fiscal stimulus → lower inflation → dovish Fed → weaker dollar.
Buttiglione's call runs the opposite way: "Trump's political weakness means a stronger dollar."
This means → the market equated "a constrained president" with "a slowing economy," but missed a second channel — the fading of policy-risk premium.
How did policy risk weigh on the dollar?
The dollar had repeatedly sold off on Trump's foreign-policy shocks: blanket tariffs on allies and rivals alike, the push to take Greenland.
In plain terms = those moves made global investors feel that holding dollars carried its own uncertainty discount.
With stronger political constraints, the odds of such shock policies drop — and that discount can unwind.
The Fed's wider hawkish lane — where is the core transmission?
A divided government gives Fed Chair Kevin Warsh more room to reassert his hawkish stance and focus on fighting inflation without White House pressure to cut rates.
Markets currently price two rate hikes before mid-next-year, with roughly 50% odds of a third.
This means → if Warsh actually uses this political window to restart a hawkish path, rate expectations have room to move higher — a direct dollar support.
How do falling oil prices and rising equities fit in?
Markets expect the midterm loss may push the Trump administration to accelerate a Middle East ceasefire, sending oil prices lower.
Cheaper energy provides an extra tailwind for U.S. stocks — S&P 500 futures continued to climb after posting their biggest one-day gain in three months on Wednesday.
This reflects a broader repricing of "a president under checks": lower unpredictability, narrower risk premium across U.S. assets.
Can this thesis actually play out?
Buttiglione sees the U.S.–Europe growth divergence persisting: stronger U.S. productivity growth underpins economic resilience and higher rates relative to Europe.
The dollar steadied on Thursday after hitting a one-month-plus low; the market has not yet reached consensus on this contrarian logic.
In plain terms = there is only one key variable — whether Warsh actually uses this window to go hawkish. If he doesn't, the entire thesis hangs in the air.
The election result shows U.S. institutions still work — checks and balances remain effective.
Luigi Buttiglione
Founder, LB Macro SA
(interview comment)
市场有风险，内容仅供研究参考，不构成投资建议。