The end of the ‘superweight’? JPMorgan expects the dollar to appreciate due to US elections

He dollar will benefit from a divisive election race in the United Stateslikely between President Joe Biden and former President Donald Trump, which will increase the chances of a trade war, according to JPMorgan.

Investors should focus on the impact of potential trade tariffs on currencies, given protectionist Trump’s strong lead among Republican contenders, JPMorgan currency strategists including Meera Chandan and Patrick Locke wrote in a Nov. 27 note. November.

“He renewed tariff risk “It will be positive for the dollar,” the strategists wrote. “While the focus on the CNY will persist, there is scope to expand it to other currencies more directly.”

With almost a year left until the elections, JPMorgan signals that a confrontation between Biden and Trump is likely “if the current surveys are maintained.” The strategists also note that under the Biden administration, tariffs inherited from his predecessor Trump “have largely remained in place.”

According to JPMorgan, a future expansion of US economic tariffs on countries and trading blocs besides China —like Europe, Mexico, and Asia in general—would have a huge effect on the strength of the dollar. A universal tariff of 10 percent could lift the value of the trade-weighted dollar by 4 percent to 6 percent as a widening trade war hits pro-cyclical and growth-susceptible currencies, strategists said.

Fiscal policy will have less impact on currency markets as the election progresses, the strategists wrote. While potential fiscal changes were key to currency risk during the 2016 and 2020 elections, “it is now less clear that fiscal policy has the same scope to boost the dollar by distinguishing US growth from that of its peers.” .

This month, a Bloomberg dollar indicator suffered its worst week since July and erased its year-to-date gains. The Bloomberg Dollar Spot Index is now on track for its worst monthly decline since a year ago, when the currency’s sharp decline also took investors by surprise.

On Tuesday, the index fell for the fourth consecutive session, as he dollar lagged behind almost all of its Group of 10 peers. Treasuries rose ahead of an auction of seven-year Treasury securities.