How the weakest dollar in 4 years could undercut the relief everyday Americans get from Trump's affordability push

• A weak US dollar could throw a wrench in Trump's push to make America more affordable.
• A weaker currency could raise rates due to higher inflation expectations, market pros say.
• An unstable US dollar could also weaken demand for Treasurys, driving up yields.

President Donald Trump says he's not in a rush to pump up America's sagging currency. Yet, that could be the very thing that comes back to bite his big affordability push, according to market pros, who say a weaker dollar could soon get in the way of the president's goal of lowering borrowing costs.

Trump, who has made lowering borrowing costs a key goal of his second term, suggested he wasn't too pressed about the greenback's decline when speaking to reporters in Iowa this week.

"The dollar's doing great," Trump said, adding that he wanted the greenback to "seek its own level" — comments that sent the currency tumbling further to a four-year low.

The president has praised a weaker dollar before.

Last year, he floated it as a positive, suggesting US firms could "make a hell of a lot more money" due to exports being more attractive broadly to foreign buyers.

The US Dollar Index, which weighs the dollar against a basket of other major currencies, is down around 10% over the past year, thanks to pressures like some investors shifting away from dollar-based assets and the Fed continuing its rate-cutting cycle.

There's just one problem: a weaker dollar doesn't bode well when it comes to making the case to lower interest rates. That's because a weaker currency lowers Americans' purchasing power abroad and could raise the cost of imported goods. Higher inflation could ultimately cause interest rates to rise — the opposite of what Trump is shooting for.

Joe Kalish, a chief macro strategist at Ned Davis Research, said he believed the "collapsing" dollar could be Trump's "Achilles' heel."

"If the new Fed Chair tries to push through a rate cut as soon as the June meeting, FX traders could smell blood in the water and punish the dollar, sending inflation expectations higher and worsening household affordability," Kalish wrote in a note to clients on Wednesday.

He added that a soft dollar could result in a "lose-lose" situation when it came to lowering rates, even if Trump were to plug in a trusted ally as Fed Chair.

A weaker dollar is also tied to the "Sell America" trade, the idea that investors are shifting away from US assets due to a worsening economic outlook. Investors dumping US bonds is part of that trade, something that would also cause yields to rise.

"The bond vigilantes would return and demand a higher term premium, forcing yields higher," Kalish added, referring to the potential for bond investors to stage a sell-off in government bonds as concerns rise over inflation, causing rates to rise in tandem.

The 10-year US Treasury yield, a key benchmark for other lending rates, was around 4.24% on Thursday, up two basis points this week. The move coincided with a 0.6 decline in the US Dollar Index over the same period.

More forecasters have been flagging the risk of higher yields due to a bond market revolt. Nela Richardson, the chief economist of ADP, said a weaker dollar could get in the way of the US's ability to sell Treasury bonds.

"A weak dollar at home doesn't always have the confidence of markets. And that confidence is going to be very important as we look at other things that are a struggle for the US economy, like sticky inflation, like high deficits and debts, and the need to sell treasuries," Richardson said.

She called a falling US dollar a "double-edged sword" when it came to Trump's economic agenda.

Robert Kaplan, Goldman Sachs' vice chairman, also pointed out that a weak dollar would affect demand in the Treasury market.

"The United States has $39 trillion of debt on its way to $40 trillion plus," Kaplan said. "I actually think the US is going to want to see a stable dollar and wants to see stability. And they want to be able to sell the long end of the Treasury curve. A stable dollar helps," he added.