The US dollar could rally by as much as 3 percent if former US President Donald Trump is re-elected in November based on his policy proposals for more tariffs, economic stimulus and a weaker commitment to NATO, according to Barclays currency strategists.
“A series of candidate Trump’s signature proposals on trade, fiscal and foreign policy represent a structural break with the past, with potentially far-reaching implications for the currency markets and the dollar”, wrote Barclays strategists, including Themistoklis Fiotakis, in a note to clients, this Thursday, March 14.
Trump will face off against Democratic President Joe Biden, as both secured their party’s nomination this week. The former president has promised increase tariffs on Chinese importsexpanding the tax cuts approved in his first term and has considered reducing US support for the North Atlantic Treaty Organization.
Trump’s trade and other proposals could add to “this latest incarnation of American exceptionalism” that has supported the dollar in recent years. The bank estimated that a 10 percent general tariff on all goods imported into the United States that remains unanswered would boost the dollar’s effective exchange rate by between two and 3 percent, according to Barclays analysis.
Barclays also expects the dollar to strengthen by at least one to 1.5 percent for every additional 1 percent of GDP, while “a NATO’s weakest commitment “It is also positive for the dollar through higher risk premiums in other (mainly European) currencies,” the strategists wrote.
Regardless of who wins the election, Barclays sees the risk of trade relations with China becoming bumpier. Strategists estimated that if the US were to impose a 60 percent tariff on imports from China, it would cause a 3 percent drop in nominal effective yuan exchange rate.
