Barclays expressed a continued bullish stance on the US dollar, despite acknowledging that the start of President Trump’s second term has presented complexities that were not previously anticipated.
The firm highlighted that trade policy has drawn attention to potential negative impacts on the US economy, and fiscal policy might be more contractionary than expected. Moreover, Europe’s fiscal response has been significant.
Barclays pointed out that while tariff risks are still a key factor supporting the dollar, especially with the upcoming 2 April review, a US-driven economic slowdown could benefit the dollar, particularly against cyclical currencies. The firm’s revised forecasts take into account recent macroeconomic developments but still favor a stronger dollar direction.
Regarding the euro, Barclays noted that Germany’s fiscal response to the changing dynamics of US foreign and trade policies has mitigated some of the downside risks for the currency.
However, this alone may not be enough for the EUR/USD to break out of its two-year range between 1.02 and 1.09. Currently trading around 1.10, the impact of Germany’s fiscal actions is believed to be factored into the price, while tariff risks are only partially accounted for.
Barclays also suggested that the potential negative effects of tariffs on growth could overshadow the short-term advantages of fiscal expansion, which also faces risks in its implementation. As a result, the firm expects the EUR/USD to move back towards the middle of its range, closer to 1.06, as trade risks become more pronounced.
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