JPMorgan: Renewed tariff risk will be positive for the dollar

According to JPMorgan, the dollar is poised to benefit from the 2024 election, which will feature a contest between US President Joe Biden and former President Donald Trump and is expected to increase the likelihood of a trade war.

In a note dated November 27, JPMorgan currency strategists, including Meera Chandan and Patrick Locke, wrote that investors should focus on the impact of potential trade tariffs on currencies, given the protectionist Trump's dominant lead among Republican candidates.

The strategists assessed that “renewed tariff risk will be positive for the dollar. While the focus on the Chinese yuan will continue, there is room for more direct expansion to other currencies.” JPMorgan notes that with one year to go until the election, a Biden-Trump matchup is likely “if the current polling holds.”

The strategists also point out that tariffs inherited from his predecessor Trump have “remained largely in place” during the Biden administration. According to JPMorgan, the future expansion of US economic tariffs on countries and trade blocs outside of China (such as Europe, Mexico, and Asia more broadly) will have a significant impact on the strength of the dollar.

The strategists projected that a 10 percent global tariff could increase the trade-weighted value of the dollar by 4 to 6 percent, as an expanding trade war would put pressure on cyclical and growth-sensitive currencies.