Investing.com - The structural case for a strong U.S. dollar has taken a few dents of late, but Barclays thinks the bulk of the gains for the euro may well be behind the single currency now.
“We have argued the structural case for a strong dollar for more than a year,” said analysts at Barclays, in a note dated March 5. “Slower U.S. data, fading hopes of additional U.S. stimulus, erratic tariff policies and an unexpected large European response are moderating our call.”
The fundamentals of the Trump plan were supposed to add to underlying structural bullish dollar dynamics. But the execution has left less fiscal space and has triggered powerful responses from policy partners, the bank said.
Confidence has also taken a hit among economic participants, while the back-and-forth with tariffs has raised questions on the persistence of the policy tool.
Additionally, Friday’s White House meeting between U.S. President Donald Trump and his Ukrainian equivalent appears to have been a watershed moment for Europe, as had it not taken place, we would never have the level of mobilisation in Europe.
However, it is clear that Europe has finally taken the message clearly – derisking from the U.S. requires substantial resource commitment.
“That said, unless U.S. data further deteriorates, we believe the bulk of the euro rally is behind us,” Barcalys added.
“Sentiment has shifted dramatically in favour of the common currency and against the USD. However, we show that, taking into account tariffs, a move towards 1.10 for EUR/$ would be the equivalent of a move above 1.15 in the pre-Trump trading setup.”