Weaker dollar plus resilient U.S. growth fuel bullish outlook, Barclays says

Investing.com -- A weakening dollar paired with surprisingly strong U.S. economic momentum is creating a supportive backdrop for risk assets, according to Barclays, which said the combination has “turbo-charged the reflation trade” across global markets.

In a new equity strategy note, analyst Emmanuel Cau wrote that “weaker dollar amid strong US growth is bullish for risk assets,” adding that recent volatility in foreign exchange markets has not derailed the move higher in equities.

Barclays highlighted that despite “chaotic price action” in FX and rates, the MSCI World has continued to notch new highs, while emerging markets have “enjoyed the dollar tailwind the most,” with the MSCI EM up about 11 percent year to date.

Cau said the latest dollar sell-off, driven by verbal intervention from Japanese authorities and softer positioning, reflects a broader shift in sentiment.

President Trump “endorsed the dollar decline,” Barclays noted, even as Treasury Secretary Bessent reiterated a pro-dollar stance. Still, the bank argued that “a weak dollar amid a strong US economy should rather be a positive development for risk assets.”

At the same time, Barclays cautioned that the reflation trade is starting to show “signs of frenzy,” with positioning “leaving little margin for error.” The firm believes this risk is visible in the “subdued reaction to early Q4 earnings.”

A stronger euro, meanwhile, is a “double-edged sword” for European equities, Barclays added, boosting inflows but posing a potential headwind for exporters and earnings if appreciation continues.

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