2024 election to propel US dollar amid, predicts JPMorgan. Here's why

JPMorgan analysts anticipate that the 2024 US presidential election, likely featuring President Joe Biden and former President Donald Trump, will elevate the dollar's status, driven by the potential for an intensified trade war.

Emphasising the impact on currencies resulting from potential trade tariffs, JPMorgan's foreign-exchange strategists, Meera Chandan and Patrick Locke, underscored Trump's protectionist stance among Republican nominees as a key factor.

"Renewed tariff risk will be dollar positive," the analysts said. They add that the potential expansion of tariffs to regions beyond China, such as Europe, Mexico, and broader Asia could significantly strengthen the dollar.

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Specifically, a universal 10 per cent tariff might result in a 4 per cent to 6 per cent boost in the greenback's trade-weighted value, particularly as an expanding trade war influences pro-cyclical, growth-sensitive currencies.

As the presidential election looms, JPMorgan highlighted the likelihood of a Biden-Trump matchup "if current polling persists". The strategists emphasise that under President Biden, tariffs inherited from the Trump era have largely remained in place.

While fiscal policy played a pivotal role in influencing currency markets during the 2016 and 2020 elections, JPMorgan anticipates diminished significance as the 2024 election progresses. The strategists assert that potential fiscal changes, which were once instrumental in foreign exchange risk, may not have the same capacity to differentiate US growth from that of its peers.

With ongoing geopolitical uncertainties and trade tensions, this month had earlier witnessed the Bloomberg Dollar Spot Index registering its worst week since July, erasing year-to-date gains. The index is presently on track for its worst monthly decline in a year, reflecting a shift that has caught investors off guard.

(With inputs from Bloomberg)

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