USD: Fundamental supports for the dollar have been eroded – CitiBank
In their weekly strategy report, analysts at Citibank, consider that the Federal Reserve’s uber-loose policy of QE, lower for longer rates and average inflation targeting is indicative of a lower USD over time. Regarding US elections, they see a Trump victory with the potential to derail the recovery in global trade and would likely be detrimental to the euro; whilst a Biden victory would be supportive for currencies that are strategic allies such as Europe, Japan and Emerging Markets and negative for the dollar.
Key Quotes:
“Regardless of who wins the November election, fundamental supports for the USD have been eroded since the onset of the COVID-crisis and are unlikely to reverse over the medium term. The Fed’s uber-loose policy of QE and lower for longer rates and average inflation targeting is indicative of a lower USD over time. Meanwhile, US federal deficits are rapidly expanding at a time, which may also unfavor USD.”
“There is a risk of a USD rally in the days around the election, particularly in the event of a contested result. This tail risk could lead to significant political and societal unrest, and cause a negative shock to risk assets and a USD rally.”
Author
Matías Salord
FXStreet
Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.
