Can Trump weaken the dollar?
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CAN TRUMP WEAKEN THE DOLLAR?
The impact of U.S. presidential elections on the greenback is a topic of intense debate among analysts. With Donald Trump having clamoured for decades for a weaker dollar, some analysts are trying to assess whether he could debase the U.S. currency.
Barclays suggests that the answer is 'no', but they present three main potential strategies that could weaken the greenback.
Fiscal tightening is the 'first best'. It directly impacts the dollar via slower economic growth, lower interest rates, and less favourable capital flows.
"Unfortunately, it is a politically unpopular option, and neither presidential candidate is running on such a platform at present," Barclays strategists argue.
Eroding the Fed's independence could lead to lower real rates, higher inflation and a weaker currency.
"Leaving aside the institutional checks against such a possibility, however, the public's discomfort with inflation in the past few years suggests that the bar to a politically controlled Fed might be much higher than typically assumed or feared," Barclays strategists say.
The prospect of a new multilateral initiative, a new Plaza Accord -- a historic agreement among major economies to devalue the U.S. dollar struck in 1985 -- has also been considered a potentially more effective and less costly way.
"Assuming that such an arrangement can be put credibly in place, it is worth asking how much the dollar would devalue, whether the proposed devaluation could be deemed acceptable by U.S. trading partners," they add.
(Stefano Rebaudo)
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