The Fed may need a presidential lecture on the many virtues of a weak dollar.

Either that, or Donald Trump might have to get back to threatening the sort of quasi-capital controls which, for a spell in 2025, flipped the correlation between US government bond yields and the world’s reserve currency.

The dollar’s on track in June for its best month in nearly a year, taking the DXY to pre-“Liberation Day” levels.

There’s the simple chart. Again: The greenback’s now recovered to levels last seen prior to Trump’s second-term tariff blitz. That’s notable.

On some vectors, this is good news. In developed markets, you expect the currency to strengthen when yields are high. When and where that’s not the case — e.g., when the pound plunged alongside surging gilt yields during Liz Truss’s disastrous tenure at No. 10 in 2022 — it’s existential. It suggests traders are painting you with the emerging market brush.

That’s why so many people fretted last year when Trump’s confrontational approach to… well, to damn near everything, saw the dollar sell off alongside Treasurys and, however briefly, US equities.

The annotations in the figures above, from SocGen’s Kit Juckes, illustrate the extent to which “Liberation Day” and all the associated drama saw the dollar decouple from rates. That’s over now. Mercifully.

“Whether I look at the DXY, or its near-mirror, EURUSD, it’s very easy to see the influence that President Trump had last year, weakening [the greenback] relative to where the economy and monetary policy settings might have been expected to take the dollar,” Juckes said. “It’s equally easy to see that gradually, the dollar’s recoupling with relative rates.”

Again, that’s a good thing. When rate diffs cease to be the main driver of DM FX performance, it suggests something’s amiss. And you don’t want anything to be so amiss with the world’s reserve currency that higher Treasury yields are insufficient to arrest a slide.

But if you’re Trump, a stronger dollar’s an albatross in the trade wars, and although he’s distracted currently with shooting wars and domestic political jostling ahead of the midterms, he’s not going to be enamored with a scenario where hawkish Fed bets put sustained upward pressure on the currency.

Although rate-hike bets have come off a bit, the market’s still fully priced for the one hike tipped by the June dot plot, plus meaningful odds of a second.

That’s what the dollar’s picking up. That, and a little risk aversion. “The canonical safe havens USD, JPY, CHF are doing well, but only one — the dollar — can also offer an attractive domestic story from a growth and carry perspective,” ING’s Francesco Pesole remarked, adding that although he “still [doesn’t] think this is the start of a new bullish USD cycle, near-term momentum remains bullish [and] Fespeak’s add[ing] support.”

On Wednesday, Scott Bessent showed up on CNBC to chat with Joe Kernen. He said Trump’s wars (or maybe “warring” is the better word) are ultimately dollar positive. “If you look [at] the new Venezuela, the dollar is going to be the centerpiece of their trade,” he declared. “We’re seeing in the Iranian negotiations, the Iranians will be invoicing in dollars. Everything we’re doing is pushing the dollar back — we’re reinforcing it.”

But he also tacitly discouraged the Fed from hiking rates, even as some commentators appeared to interpret his remarks as a nod to the possibility that Warsh may have to countenance at least one hike in the presence of above-target inflation.

“Over the past few days, we’ve read the obituaries on Alan Greenspan,” Bessent said. “He saw that the office modernization and the internet could be a boom for non-inflationary growth and he let the economy — I think there was in early ’97, one tap-on-the-brakes rate hike, but other than that, we had the longest sustained growth period in history.”

This was entirely predictable. As I put it last week, “Warsh’s antipathy to wordy FOMC statements didn’t keep him from demanding the inclusion of a reference to AI-driven productivity gains” in the new, slimmed-down communications. He mentioned such gains during the press conference too, and this is a subject that one of his “task forces” will take up.

Asked by Kernen whether it’s reasonable to “expect rate cuts this year or even next year, given that we’re nowhere near 2%” on inflation, Bessent said he wouldn’t comment. Then he commented. At length.

“[L]et’s see what inflation looks like on the other side of” the Iran conflict, he said, before suggesting we should have “an open mind that the AI boom could up productivity and be disinflationary, get[ting] us back down to target.”

Bessent tried to roll all of this up into a coherent story about the dollar. “You can have a strong dollar when rates are being cut because the economy’s accelerating,” he told Kernen. Rate differentials matter, he went on, “but mostly we’re going to have a strong dollar because our economy is pulling away from the rest of the world.”

That’s all fine, good and generally accurate, but Trump’s a guy who likes to have his cake and eat it too. Nowhere is that penchant for having it both (all) ways more apparent than in his approach to the dollar.

Trump wants a very weak currency for the purposes of trade, a generally strong currency for the purposes of bragging rights and a dominant currency for the purposes of geostrategic extortion, despite being apprised that extortion is self-defeating if it forces other nations to de-dollarize. From a policy perspective, Trump wants massive rate cuts with no inflation and huge, unfunded fiscal expansion with lower yields.

The fact that a lot of those imperatives are incompatible (or even mutually exclusive) is a problem Trump leaves to other people. People like Warsh and Bessent.