The US dollar would be poised to rally 3% if Donald Trump is re-elected in November based on his policy proposals for more tariffs, economic stimulus and a weaker commitment to NATO.
Barclays Plc's foreign-exchange strategists suggest that if former President Donald Trump is re-elected in November, the US dollar could rally by 3% based on his policy proposals, which include more tariffs, economic stimulus, and a weaker commitment to NATO.
In a note to clients, Barclays strategists, including Themistoklis Fiotakis, highlighted that Trump's proposals represent a significant departure from past policies, potentially leading to far-reaching implications for FX markets and the dollar.
Trump, a Republican, is expected to face off against Democratic President Joe Biden, both having secured their party nominations. Trump has pledged to increase tariffs on Chinese imports, support extending tax cuts from his first term, and consider reducing US support for NATO.
Barclays' analysis indicates that Trump's trade proposals could bolster the greenback, adding to what the bank calls "US exceptionalism" that has supported the dollar in recent years. For example, a 10% tariff on all US imports, if unchallenged, could increase the dollar's effective exchange rate by 2% to 3%.
Additionally, Barclays anticipates a 1% to 1.5% upside for the dollar for every additional 1% of GDP growth. A weaker commitment to NATO could also benefit the dollar by increasing risk premiums in other currencies, especially European ones.
Regardless of the election outcome, Barclays foresees a potential escalation in trade tensions with China. They estimate that if the US were to impose a 60% tariff on Chinese imports, it could lead to a 3% decline in the yuan's nominal effective exchange rate.
