The nearing presidential election is likely to spark the end of the bull run for the US dollar, which has rallied for much of the past two years, bolstered by high interest rates and a resilient domestic economy.

The US Dollar Index — a measure of the dollar against a basket of other widely traded international currencies — has fallen about 2% since late June after a long climb up. The index is up about 16% from two years ago and jumped about 27% from its May 2021 low to its September 2022 high.

Former President Donald Trump and vice-presidential candidate Sen. J.D. Vance (R-Ohio) have become outspoken opponents of a strong dollar, arguing that it has become a major hindrance to reviving manufacturing in the US. The two Republicans, if elected, are expected to attempt to weaken the dollar to make imports more expensive for US consumers and US exports cheaper for foreign consumers, with both outcomes aimed at reducing America's trade deficit. However, just how they plan to do this remains uncertain, as does how any push to devalue the US currency would work with an anticipated Trump push for lower taxes and higher tariffs on imports, all of which could again spike inflation.

"This is hard to pull off and would be extremely disruptive to international trade and even domestic commerce," said Derek Tang, an economist with LH Meyer/Monetary Policy Analytics. "In fact, the paradox is that this wrench might end up appreciating the dollar because in times of uncertainty, global investors flock to the dollar and Treasury debt."

The dollar has been the world's dominant reserve currency for about 80 years and central banks worldwide hold about 60% of their foreign exchange reserves in dollars. About half of all global trade is invoiced in dollars, and dollars are involved in about 90% of all transactions in foreign exchange markets, according to the Congressional Research Service.

The dollar's dominance has turned into a "massive subsidy to American consumers, but a massive tax on American producers," Vance said at a 2023 hearing with Federal Reserve Chair Jerome Powell.

"When I survey the American economy and I see our mass consumption of mostly useless imports on the one hand and our hollowed-out industrial base on the other hand I wonder if the reserve currency status has some downsides and not just some upsides," Vance said during the hearing.

The dollar's recent fall is largely due to interest rate differentials, with US government bond yields no longer rising relative to non-US yields, and rising expectations that the Fed will begin to cut rates in September, said Tim Hayes, chief global investment strategist at Ned Davis Research.

While the Trump campaign has provided no details on how, if successful in November, an incoming Republican administration would work to weaken the dollar, strategists said the US Treasury Department could sell dollars to buy foreign currency, the administration could try to convince the Fed to print more currency, the US could try to coordinate with other countries to boost their own currencies, or a Republican White House could push for a tax on foreign holdings of US dollars.

"As we've seen with Japan's attempt to stem the yen's extreme weakening, currency intervention can have a short-term influence but little more," said Hayes with Ned Davis Research. "More sustained moves require coordinated intervention."

Any potential path to weaken the dollar, comes with heavy risks, including triggering another spike in inflation and undermining the credibility of the US, said Jane Foley, head of foreign exchange strategy at Rabobank.

"If Trump were to win the election, I am hopeful that his advisors would warn him against having an interventionist role," said Foley. "I expect that this is the consensus view at the moment, which implies that his preference for a weak [US dollar] would not have much impact particularly given that his tariffs and preference for weaker taxes would imply less Fed rate cuts and a stronger dollar."

Foley pointed to Turkish President Recep Tayyip Erdoğan's efforts in 2023 to loosen government controls of foreign currency exchanges — which led to the Turkish lira plunging to record lows, weakening an already struggling economy — as a worst-case scenario.

Still, relatively high interest rates, an economy that continues to avoid a recession and the US dollar's status as an invoicing currency, will make it far more difficult to substantially weaken the dollar, Foley said.

"The US is clearly not Turkey and even if Trump went full Erdoğan [and] took over the Fed, it would be difficult to undo the dollar's reserve status over a relatively short space of time," Foley said.