Citi Strategists Reiterate U.S. Election as Dollar Booster
In a recent analysis, Citi strategists have reaffirmed their stance that the upcoming U.S. election could have a positive impact on the U.S. dollar. While considering various factors like Federal Reserve policy, recession risks, and global economic conditions, they point to trade and tariff policies as the key drivers of a bullish USD outlook related to the election.
Specifically, the potential for increased tariffs, especially targeting China, is expected to strengthen the dollar. Currencies like the Chinese yuan, euro, Mexican peso, Taiwanese dollar, and Thai baht are identified as vulnerable to these risks.
Despite the uncertainty in the macroeconomic landscape, Citi outlines different election scenarios with varying implications for the dollar. A “red wave” scenario, where Trump wins and Republicans control both chambers of Congress, is seen as the most USD positive. In this case, Citi anticipates a focus on improving the trade deficit through tariffs and potential fiscal expansion through tax cuts and deregulation.
Market participants typically start trading election themes two to three months ahead of the event, with the U.S. presidential debates in September considered a crucial point for pricing in election outcomes more seriously. It is expected that any USD strength related to the election will likely be priced in well before November, potentially reaching its peak around that time.
As the election approaches, Citi suggests that the event could be a “sell the news” moment for the USD and for volatility. Other factors like Federal Reserve policy, interest rates, the probability of a U.S. recession, and global economic developments will also play a significant role in shaping the dollar’s trajectory in the coming months.
In conclusion, understanding the potential impact of the U.S. election on the dollar and broader financial markets can help individuals make informed decisions about their investments and financial strategies. By staying informed about the various factors at play, individuals can better navigate the evolving market conditions and position themselves for financial success.