The victory of Donald Trump seems increasingly likely in the elections USA, to such an extent that analysts are already dissecting the consequences of a hypothetical Republican victory. One of those affected would be the dollaras Trump previously floated the possibility of devaluing it as part of his effort to address the country’s trade deficit, although At Rabobank, “ironically,” a second term for the Republican would have the opposite effect on the currency.
“Many of the policies that Trump has been advocating recently suggest rising inflationary pressures. If Trump were to move to enact large tariffs early in a second presidency (should he win the November election), this suggests that the Fed’s rate-cutting cycle could be shortened. Ironically, this implies that A second Trump presidency is more likely to be associated with USD strength than weakness“, the firm assures.
What could happen to the dollar if Donald Trump wins the US elections?
This would not be well received by Trump, who, during his first term in the White House, tried on several occasions to talk about a lower dollar in order to improve the US trade deficit.
“In 2019 he commented that The United States should match other countries’ efforts to weaken their own currencies. This was a period of low inflation and one in which ‘currency wars’ were a familiar theme. As part of his desire for a weaker dollar, Trump repeatedly complained that Fed interest rates were too high and were holding back US growth,” they add.
This situation caused some voices to warn about the Trump’s desire to exert more control over Federal Reserve policya possibility that analysts do not fully believe.
“Given the potentially catastrophic inflation and the credibility risks associated with the loss of central bank independenceThe market did not see much influence in this story, even though it coincides with Trump’s long-term concerns about the strength of the dollar,” they explain.
How will the dollar behave against the euro?
Meanwhile, EUR/USD is trading “slightly above their mid-June levels“, despite the uncertainty related to the French elections.
This rise in the value of the euro against the American currency occurs “in the face of a expectations are growing that Le Pen’s far-right party will fail to win an outright parliamentary majority in the second round of elections on Sunday.”
“From a market perspective, a hung parliament should restrict the far-right’s ability to implement costly, voter-friendly tax changes. Like other far-right parties across Europe, The National Rally of France is a far-right party in terms of national identity and strict immigration policiesbut it also has a strong social agenda that would be costly in budgetary terms,” the firm explains.
The other option in the neighboring country is a victory for the left, which “also has a strong social agenda, which means that it is “It is difficult to see France making rapid progress in reducing its budget deficit/GDP ratio”.
“Beyond short-term fluctuations, our bond strategists see the Bund/Oat spread trading in a wider range going forward and if the market pays more attention to the French and Italian budgets, euro bulls could retreat. This supports the view that EUR/USD could decline in the coming months.“, they say.
And what will happen to the Yen?
In comparison with the Japanese currency (JPY), Rabobank analysts point out that “yield spreads are clearly at the heart of the outlook for USD/JPY.”
“The downward revision of Japan’s June PMI survey has only added to the difficulties faced by the Bank of Japan hawks. That said, The weak yen is inflationary and is weighing on consumer confidence, which will increase the willingness of policymakers to stabilize the currency.“, they anticipate.
In this way, they point out that “currency intervention may be back in play very soon,” although they qualify that, “in the absence of better Japanese economic data, The yen remains very vulnerable“.
“We have revised upwards our forecasts for USD/JPY and see Little scope for a sustained recovery of the yen below USD/JPY 160 in the coming weeks“, they conclude.
Source: Ambito
