Second Trump Term Would Spark a 3% Dollar Rally, Barclays Says

(Bloomberg) -- The US dollar would be poised to rally 3% if former 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 foreign-exchange strategists at Barclays Plc.

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“A number of candidate Trump’s flagship proposals across trade, fiscal and foreign policy amount to a structural break with the past, with potentially far-reaching implications for FX markets and the dollar,” Barclays strategists including Themistoklis Fiotakis wrote in a Thursday note to clients.

Trump, a Republican, is set to oppose Democratic President Joe Biden, with both having secured their party nominations this week. The former president has vowed to increase tariffs on Chinese imports, supports extending tax cuts passed in his first term and has weighed reducing US support to the North Atlantic Treaty Organization.

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According to Barclays’ analysis, Trump’s trade and other proposals could add to “this latest incarnation of US exceptionalism” that has supported the greenback in recent years. The bank estimated that a blanket 10% tariff on all goods imported to the US that goes unanswered would boost the dollar’s effective exchange rate by between 2% and 3%.

Barclays also expects at least 1% to 1.5% in upside for the dollar for every additional 1% of GDP, while “a weaker NATO commitment is also dollar positive via higher risk premia in other (mainly European) currencies,” the strategists wrote.

Regardless of who wins the election, Barclays sees the risk of bumpier trade relations with China. The strategists estimated that if the US were to impose a tariff of 60% on China’s imports, it would bring about a 3% decline in the yuan’s nominal effective exchange rate.

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--With assistance from Carter Johnson.

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