Barclays expressed concerns about the future of the US dollar (USD), saying reports of its demise are exaggerated despite the current political climate.
The company’s confidence in the currency comes amid a tumultuous political landscape, with the Republican Party nominating Trump and Vance, and the Democratic Party experiencing significant changes following President Biden’s announcement yesterday that he will not seek re-election.
President Biden’s endorsement of Vice President Kamala Harris has significantly improved her chances of winning the Democratic nomination. Former President Trump is currently leading in swing state polls, including against Vice President Harris.
The USD faces one of its toughest periods in 2024, with the Trump-Vance partnership in the spotlight. Both have advocated a weaker USD as a strategy to boost US manufacturing. Trump has criticized China and Japan for keeping their currencies low to support their exports, while VP candidate Vance has raised questions about the benefits of the US having reserve currency status.
Despite these challenges, Barclays argues that imposing heavy tariffs on US imports, a key part of Trump and Vance’s economic agenda, would be a positive for the USD. The company believes that even if other countries were to retaliate proportionately, the impact of US tariffs would still support the dollar’s strength. Moreover, Barclays considers it highly unlikely that Jerome Powell’s Federal Reserve will implement policies aimed at deliberately weakening the dollar.
Looking to historical precedents, a future Trump administration could try to negotiate a new deal similar to the 1985 Plaza Accord, which would require other countries to agree to strengthen their currencies. However, Barclays points out that such a consensus seems unlikely, especially with China, where exports have become a crucial part of the country’s economic growth, among other struggling sectors.
In conclusion, Barclays maintains a positive view on the USD, suggesting the currency is likely to remain resilient.
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