Barclays addressed concerns about the future of the U.S. dollar (USD), asserting that reports about its demise are overstated despite the current political climate.
The firm'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.
The endorsement of Vice President Kamala Harris by President Biden has notably increased her chances for the Democratic nomination. Currently, former President Trump is leading in swing state polls, including against VP Harris.
The USD is facing one of its toughest periods in 2024, with the spotlight on the Trump and Vance partnership. Both have advocated for a weaker USD as a strategy to boost U.S. manufacturing. Trump has criticized China and Japan for keeping their currencies low to aid their exports, while VP-nominee Vance has raised questions about the benefits of the U.S. holding reserve currency status.
Despite these challenges, Barclays argues that the imposition of heavy tariffs on U.S. imports, a key part of the Trump and Vance economic agenda, would be a positive factor for the USD. The firm believes that even if other countries retaliate proportionally, the impact of U.S. tariffs would still support the strength of the dollar. Moreover, Barclays considers it very unlikely that Jerome Powell's Federal Reserve would implement policies aimed at deliberately weakening the dollar.
Looking at historical precedents, a prospective Trump administration may attempt to negotiate a new agreement similar to the Plaza Accord of 1985, which would require other countries to agree to strengthen their currencies. However, Barclays points out that such a consensus seems improbable, especially with China, where exports have become a crucial part of the country's economic growth amidst other struggling sectors.
In conclusion, Barclays maintains a positive outlook on the USD, suggesting that the currency is likely to remain resilient.
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