Dollar trade may be turning: Barclays

Investing.com -- In a note to clients on Friday, analysts at Barclays said they believe “the recent turnaround in the dollar could potentially have legs,” as emerging supports for the greenback offset earlier weakness driven by so-called Trumponomics.

The bank noted that “the U.S. dollar has been one of the main casualties of the Trump trade year-to-date,” falling about 12% from January highs. 

“Sell America concerns caused by Trumponomics have seen the DXY falling,” Barclays said, citing investor worries over tariff policy, fiscal discipline, and Federal Reserve independence.

Barclays added that while the dollar has shown signs of stabilisation since the summer, its recovery remains muted relative to the strength in U.S. equities and Treasuries. 

Dollar positioning, it said, “continues to be extremely short, as investors use the dollar as a vehicle to express their concerns about Fed independence, while gold has surged.”

However, the bank pointed to emerging supports to the dollar, including renewed French political risks, “concerns about execution of the fiscal stimulus in Germany,” and “softening data surprises” that have capped the euro. 

“The euro this week has broken below the key 100-day moving average technical levels, which could potentially trigger further selling by systematic investors,” Barclays said.

The analysts also cited Takaichi’s surprise election victory in Japan, which led to “a bearish repricing of yen expectations.” 

They added that potentially better U.S. growth into next year, on easing financial conditions and fiscal impulse, could provide more dollar stability, while the “Buy America” theme tied to AI investment may drive further inflows.

Barclays concluded that while the dollar’s appreciation “hasn’t been a headwind to risk assets yet,” further strength “might trigger a more defensive price action in risk assets.”