This year, Donald Trump seems determined to take on everyone. In geopolitics, he greenlit a special operation against Venezuela’s president and, after that apparent success, hinted at moves in Mexico, Colombia, Cuba, and even Greenland, while seizing oil tankers even in international waters.
Domestically, Fed Chair Jerome Powell has accused the Trump administration of trying to politicize the Fed’s monetary policy decisions after being summoned to criminal court over his testimony about renovations to the Fed’s headquarters, though the dispute is really about his refusal to cut interest rates to appease the White House.
Where could all this lead the markets?
With geopolitical tensions rising and the U.S. retreating to a Monroe Doctrine-style approach, some investors may shy away from dollar-denominated assets. That would weigh on the dollar index while pushing gold spot prices higher, which is exactly what we are seeing now.
As for the S&P 500 and Nasdaq, short, targeted actions like the one in Venezuela are unlikely to cause major disruption. Instead, the stock market’s main focus remains artificial intelligence: whether companies investing in the technology will ultimately reap higher returns, or whether billions will be wasted, as was the case with Meta’s bet on the metaverse.
Regarding Trump’s plan to request a record $1.5 trillion defense budget for 2027, more than 50% higher than the current level, there are two key points. First, tariff revenues are far from enough to cover such a massive increase. Second, any defense budget requires Congress’s approval, and it’s unclear whether Trump could gather enough support, especially since the full 2026 budget hasn’t even been passed yet.
Now, as for the Fed: if it loses its independence and starts making monetary policy decisions based on the president’s words — or anyone else’s — rather than economic data, confidence in the system could take a hit, likely weakening the U.S. dollar.
For instance, last year, Trump’s attacks on Powell triggered market volatility, including a rise in U.S. Treasury yields. Fortunately, the Fed’s Board of Governors has confirmed all reserve bank members, limiting Trump and his allies’ ability to sway policy.
In summary, the president’s current trajectory isn’t exactly favorable for the U.S. dollar, but it could boost gold and other precious metals
