The Return of the “Trump Trade” Boosts the Dollar – Should You Buy or Sell?
As the U.S. election looms just over two weeks away, the dollar has been experiencing a resurgence fueled by the return of the “Trump trade.” With Republican candidate Donald Trump gaining ground in recent polls, investors are considering the implications for the greenback. But is this rally sustainable, or should investors be cautious?
UBS, a leading financial institution, has weighed in on the matter, advising that while a Trump victory may lead to a short-term bounce for the dollar, the long-term outlook is less certain. In fact, UBS suggests that stronger dollar rallies should be sold, as Trump’s policies may not be entirely positive for the currency in the medium term.
The market’s reaction to the potential for a Trump victory has been swift, with the dollar being one of the key beneficiaries of the so-called Trump trades. However, UBS warns that this boost may be short-lived, projecting the euro-dollar to reach 1.16 by 2025, indicating limited upside for the greenback over the long haul.
In the broader currency market, emerging market currencies have faced challenges against the dollar in recent weeks. Despite this, UBS sees opportunities in select currencies, such as the South African rand and the Mexican peso. Both currencies are viewed favorably due to factors like a more reform-minded government in South Africa and the Mexican peso already pricing in political turmoil.
So, what does this mean for investors? Here’s a breakdown of the key takeaways:
– The dollar’s recent rally is tied to the return of the “Trump trade,” but UBS advises caution in the face of a potential Trump victory.
– While a short-term bounce for the dollar is possible, selling stronger dollar rallies may be a prudent strategy for investors.
– The euro-dollar is projected to move towards 1.16 by 2025, suggesting limited upside for the greenback in the long run.
– Emerging market currencies like the South African rand and the Mexican peso are seen as attractive options for investors looking to collect carry over the medium term.
In conclusion, investors should remain vigilant in the face of market uncertainties surrounding the U.S. election. While the dollar may experience short-term gains from the “Trump trade,” a more cautious approach is warranted for long-term investments. By diversifying into select emerging market currencies, investors can potentially capitalize on opportunities for growth and stability in the evolving global financial landscape.