(Bloomberg) — Wall Street banks including Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM) think there is still plenty of money to be made buying the dollar (DX=F), even after US President Donald Trump’s tariff-push sent the greenback soaring.
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Among their trades: Goldman Sachs expects the dollar to break parity against the euro. JPMorgan predicts the US currency to buy around 1.50 Canadian dollars for the first time in a generation.
Almost every asset class sold off after Trump said he will slap tariffs against Canada, China and Mexico from Tuesday, leaving the dollar the unanimous winner. Although many traders had been braced for tariffs before Trump’s inauguration, his initially soft tone on China fueled bets that he might hold fire, undermining the dollar rally. Those hopes have proved short lived.
“Tariffs have a strong, direct and unambiguous impact on exchange rates, unlike other asset classes,” Goldman Sachs strategists including Dominic Wilson wrote in a note, noting risks of an 8% to 10% fall in the euro in a global tariff scenario.
Underpinning the dollar’s appeal is the assumption that a trade war will support US inflation and thus interest rates as well as hurting foreign economies more than the US and enhancing its appeal as a haven at a time of risk.
The dollar’s march higher on Monday pushed the loonie to its weakest level in more than two decades, while the Mexican peso, the euro and the Australian dollar fell to multi-year lows.
Going long dollars has become one of the most popular trades in global markets recently. Leveraged funds are more bullish on the currency than they have been since Sept. 2018, according to Commodity Futures Trading Commission data compiled by Bloomberg.
JPMorgan recommends being positive towards the greenback and yen positions against currencies of economies targeted by tariffs, such as the Canadian dollar and euro. It said the immediate introduction of 25% tariffs could weaken the loonie as far as 1.58 per dollar, while the dollar could hit 23.50 against the Mexican peso and 7.37 against the offshore yuan.
Although the eurozone was spared from Trump’s weekend tariff announcements, he has said tariffs against the trading bloc “will definitely happen.”