One of the big picture trends over the last two years has been the stronger US dollar.
Back in May, analysts had even been arguing that the greenback had some more room to go this year and next in light of the better-performing economy and what at the time seemed to be a more active Fed.
But, over the last few months the US dollar index has remained more or less flat, hovering near a range of 93 to 98.
And now, Jefferies’ David Zervos argues that both US presidential candidates could potentially lead to a weaker American currency, in part due to their positions on free trade — with Donald Trump being the more negative influence.
“If the US moves away from free trade agreements, as Trump has suggested, returns on capital will fall. Domestic labour may gain but the gains shouldn’t exceed the losses for capital income, and if the losses to capital income are large enough, even labour may lose. Lower returns on capital should lower real rates and lower the dollar, just as we saw with the GBP following the Brexit vote,” he wrote in a note to clients.
“I believe that a Clinton win would also usher in a minor pivot toward higher trade barriers so that she too would be USD bearish, but less so,” he added.
The US dollar index is up by 0.3% at 95.73 as of 12:58 p.m. ET.