A sharp dollar depreciation seems likely – Natixis

During recessions, the dollar is usually used as a safe-haven and appreciates against the euro. This was not the case during the COVID crisis and analysts at Natixis believe that a depreciation of the dollar is now the most likely scenario.

Key quotes

“Monetary policy during the COVID crisis was even more expansionary in the United States than in other OECD countries.”

“The euro zone now intends to use its savings surplus to finance investments in the euro zone, with European investment funds borrowing this surplus instead of lending it to the rest of the world, particularly the United States.”

“The new economic policies that Joe Biden would implement if elected president (increased taxation of capital gains, corporate earnings and wealth; federal minimum wage doubled to $15 per hour, restrictions on oil and gas production) could discourage non-residents from buying US equities.”

“When there are capital outflows from emerging countries, which was the case at the beginning of the COVID crisis, the dollar is supported, which can also be seen from its appreciation against emerging currencies. But since mid-May 2020, these capital outflows have stopped and emerging currencies have appreciated again, which is negative for the dollar against the euro, for example.”