(Bloomberg) -- An increased potential for a Republican president later this year stands to boost the US dollar even if the party aims to offset the currency’s strength, according to Morgan Stanley analysts.
“While former President Trump has spoken against dollar strength, we think his policies would lead to a stronger dollar,” strategists including Andrew Watrous and Zoe Strauss wrote in a research note dated Aug. 6. They pointed to a surge in key dollar indexes in November and December 2016 after Donald Trump’s last victory. “An expansionary fiscal policy agenda in a Republican sweep outcome could boost expectations about US growth and encourage capital flows into the US,” they added.
“Higher US tariffs on the rest of the world could lead foreign authorities to allow a depreciation of their domestic currency or weigh on economic activity abroad, making the US look more attractive in comparison.”
The DXY is up 1.6% on the year even as traders increase bets that the Federal Reserve may have to reduce interest rates more aggressively as the US economy shows signs of a slowing down.
In contrast, Morgan Stanley sees headwinds for the greenback under another Democratic administration. “The softening of key risks to growth – particularly those involving trade and geopolitics – are likely to reduce demand for safe-haven currencies including the US dollar if the Democratic Party retains control of the White House,” the analysts said.
©2024 Bloomberg L.P.
