Wells Fargo Sees Dollar Rallying as Trump Trade War Plays Out
(Bloomberg) — Wells Fargo & Co.'s currency strategists say the US dollar stands to be one of the market winners from President Donald Trump's trade war.
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Concerns about the fallout from his plan to keep raising tariffs has unsettled financial markets worldwide — dragging the dollar down along with stocks so far this year amid worries it could rekindle inflation and stall the US economy.
But Wells Fargo strategists including Aroop Chatterjee said the currency's slide will likely be temporary: They said in a note to clients Monday that the dollar may rise anywhere from 1.5% to 11%, depending on various models of how high the US raises tariffs and how other countries respond.
The main reason is that the US tariffs would weaken demand for overseas goods, dragging down foreign currencies. On top of that, the inflationary impacts will likely drive the Federal Reserve to keep interest rates elevated. The biggest gains, according to Wells Fargo, would come if other governments don't retaliate, with smaller gains depending on the degree of the response.
'The combination of competitiveness issues driving the stronger dollar plus monetary policy expectations driving the dollar — that's kind of how you end up with the strong dollar on tariffs,' Chatterjee said in an interview.
The forecast comes after the US dollar slipped against most of its significant counterparts during the first three months of the year on concern Trump's policies could stall the economy. On Monday, world markets were whipsawed by fresh bouts of volatility as traders waiting for Trump's next tariff announcement on Wednesday.
But the 'the global spillover effects from all this policy uncertainty and actual tariff increases are being significantly underpriced,' Chattterjee said. 'And that's kind of where we probably disagree with how the markets are currently positioned.'
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