The US Dollar has little potential for strength right now – Commerzbank

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, sees good reasons to be cautious with USD longs at the moment.

Anyone looking at USD risk has to weigh the probabilities against the consequences

“It is becoming increasingly clear why the ‘it was always alright in the end’ argument is of little use when it comes to the looming US Treasury debt ceiling.”

“The economists and political analysts who tell us the story of ‘it was always alright in the end’ have a different risk-reward profile to those who have to manage USD risks. If they are wrong either way it has more or less the same effect for them. So from their perspective, it's rational to bet on the scenario with the highest probability. But if that were to go wrong, the potential consequences for the Dollar would be dramatic.” 

“Anyone looking at USD risk has to weigh the probabilities against the consequences. And then the risk of default becomes so relevant that it is likely to make many market participants more cautious. This may be one of the reasons why the Dollar has so little potential for strength right now.”