Citi Strategists Reiterate USD Positive View for U.S. Election; Trade and Tariffs Key Factors - Analysis and Breakdown
Citi strategists have maintained their stance that the upcoming U.S. election will be positive for the U.S. dollar, citing trade and tariff policies as major drivers. Specifically, the potential for increased tariffs, particularly targeting China, is expected to bolster the dollar. Currencies like the Chinese yuan, euro, Mexican peso, Taiwanese dollar, and Thai baht are identified as most vulnerable.
However, the macroeconomic landscape remains uncertain, with other factors like Federal Reserve policy, recession risks, and global economic conditions also playing a significant role. Citi outlines different election scenarios, with a "red wave" scenario, where Trump wins and Republicans control both chambers of Congress, seen as the most USD positive.
Market participants are likely to start trading election themes two to three months ahead of the event, with the U.S. presidential debates in September serving as a key point for pricing in election outcomes. It is expected that any USD strength related to the election will be priced in well before November, with the dollar potentially peaking around that time.
Despite the election impact, other factors such as Federal Reserve policy and broader macroeconomic conditions will continue to influence the dollar. Furthermore, global economic developments, including the slowdown in manufacturing and challenges in Europe and China, could also have an effect.
In conclusion, the U.S. election is expected to have a significant impact on the USD, with trade and tariff policies playing a crucial role. However, other factors like Federal Reserve policy and global economic conditions will also be important in shaping the dollar's performance in the coming months. Investors should closely monitor these factors to make informed decisions regarding their finances and investments.