Investing.com — The upcoming U.S. election will be wild, according to economists at Wells Fargo, but the eventual path will be higher as foreign central banks are likely to accelerate the pace of interest rate cuts to support economic growth.
Wells Fargo said it now sees a stronger U.S. dollar than before over the long term, due to “accelerated easing by foreign central banks and disappointing sentiment toward China,” which should weigh on currencies in 2025 and 2026 the G10 and emerging markets.
While the dollar is expected to weaken in the near term, especially against G10 currencies, this trend is likely to reverse in the second half of 2025 as the Fed’s rate-cutting pace slows, while foreign central banks are likely to continue easing .
“Accelerated easing by G10 central banks should weigh on foreign currencies, while over the medium term, stronger US growth and a slowing and eventual end to Fed easing should also support dollar gains.” , the economists said.
The need for speed in rate cuts in the G10 and emerging economies is expected to put most emerging market currencies on the back foot next year. This would pale in comparison to the environment for the Fed, against the backdrop of strong US growth and disappointing economic performance from China.
Currencies sensitive to China, meanwhile, are expected to underperform, especially high-beta currencies such as the euro and the New Zealand dollar, as China’s economic problems are likely to continue next year.
In the short term, a potential victory for Donald Trump in the upcoming U.S. presidential election, “regardless of the mix in Congress, would make us more positive on the U.S. dollar,” he said. While a Harris victory would likely lead to a “relief rally that supports the foreign currency and results in a temporary depreciation of the dollar.”
While the US presidential election is “close and the post-election policy outlook is uncertain, trade and fiscal policy will be central regardless of which candidate wins the White House,” she added.
