Citi strategists on Thursday reiterated their view that the US election is “positive for the US dollar”, while acknowledging other factors that could influence the coming months, such as Federal Reserve policy, recession risks and global economic conditions.
According to Citi, trade and tariff policies are expected to be the main driver of the US dollar’s bullish outlook in relation to the election. Specifically, the possibility of higher tariffs, especially those targeting China, is seen as a key factor that could boost the dollar.
Strategists noted that currencies such as the Chinese yuan ( ), euro ( ), Mexican peso ( ), Taiwan dollar ( ), and Thai baht ( ), were identified as particularly vulnerable to these risks.
However, the macroeconomic landscape remains uncertain, and other catalysts may become more influential.
Citi identifies different election scenarios, with different impacts on the dollar. A “red wave” scenario, where Trump wins and Republicans take control of both houses of Congress, is seen as the most bullish scenario for the dollar. In this case, Citi expects a focus on improving the trade deficit through tariffs and perhaps some fiscal expansion through further tax cuts and deregulation.
“Thus, we find this to be a solid market premium for a red wave. However, we see 5% as a ceiling for how far the USD can rise on election risk alone given the other factors currently weighing on the USD,” according to the Citi note.
The report also notes that market participants typically start trading election themes two to three months before the event, with the US presidential debates in September representing a key point for markets to start pricing in election outcomes more seriously.
Strategists expect that any election-related US dollar strength will likely be priced in before November, with the dollar likely to peak around that time.
“This suggests that the election will be a ‘sell-news’ event for the US dollar and volatility,” they add.
They also point out that other factors will remain important for the dollar in the coming months. Federal Reserve policy, particularly the path of interest rates, and broader macroeconomic conditions, including the possibility of a U.S. recession, will weigh on the dollar, along with election risks.
Moreover, global economic developments, such as the slowdown in manufacturing and economic challenges in Europe and China, may also have an impact.
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