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Euro’s Potential 10% Drop Due to Trump Tariffs and Tax Cuts – Goldman’s Prediction

2 days ago
2 days ago


Goldman Sachs Strategists Analyze Dollar’s Strength Amidst US Election Uncertainty

Factors Supporting Dollar Strength

  • Recent developments reinforce the dollar’s strength over the past decade
  • Tariffs play a central role in foreign exchange (FX) markets
  • Dollar’s response varies under different election scenarios

    Potential Scenarios and Impact on Dollar

  • Republican Sweep: Larger tariff increases and tax cuts could lead to a strong dollar rally
  • Divided Republican Government: Expected to trigger a narrower and smaller dollar rally
  • Democratic Sweep or Divided Democratic Government: Likely initial Dollar downside as markets reprice the prospect of dramatic tariff changes

    Currencies Sensitive to Policy Changes

  • Mexican Peso (MXN)
  • Chinese Yuan (CNH)
  • South Korean Won (KRW)
  • Euro (EUR)
  • Australian Dollar (AUD)

    Forecasted FX Impacts

  • Chinese Yuan: Could weaken to around 7.40 under increased US tariffs with a Republican government
  • Euro: Could decline by approximately 3%, or up to 10% in the case of a global baseline tariff with corresponding tax cuts

    Outlook for Japanese Yen

  • Less clear due to competing influences
  • Less preferred currency pair for Goldman Sachs in this context

    Investment Recommendations

  • Republican Outcomes: Favor longer-dated trade expressions over Democratic ones
  • Treat estimates based on the 2018-19 experience with care
  • Markets may not fully reflect tariff expectations immediately

    Key Factors Shaping FX Outlook

  • US policies are just one of the key factors
  • Potential upside risks to forecast of gradual Dollar depreciation
  • Continued ‘US exceptionalism’ cited as a factor
  • Potential downside risks from China’s stimulus efforts impacting global growth

    In conclusion, Goldman Sachs strategists provide valuable insights into the potential impact of the upcoming US election on the dollar’s strength and foreign exchange markets. By analyzing different election scenarios and their implications on tariffs and tax cuts, investors can make informed decisions to navigate the evolving FX landscape. Understanding the sensitivity of currencies to policy changes and the broader factors shaping the FX outlook is crucial for managing investment portfolios and anticipating market movements. As the election approaches, staying abreast of these developments will be essential for investors looking to optimize their financial strategies and position themselves for success in the dynamic world of global finance.

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