Email of the day on the US Dollar
Comment of the Day

February 03 2021

Commentary by Eoin Treacy

Email of the day on the US Dollar

I am a not so new subscriber, I started in 2010. And your service is very valuable for me, so thank you! - Your commentary starts my day.

I understand that your view is that the dollar will depreciate over the coming years. Since I am based in the euro area, and have approx. 50% of my investments in USD, this is a topic that interest me very much.

I enclose a report from Nordea Bank, with a slightly different view. I would be very interested to know your take here.

Eoin Treacy's view

Thank you for patronage over the last decade and for this well-argued report which I’m sure will be of interest to the Collective. Here is a section:

It's one thing to say you will accept inflation overshooting, it's another thing to do it once inflation is decidedly overshooting - especially with global growth numbers booming at the same time. We therefore expect the market to be back in questioning the pace of the Fed's bond purchase program around summer at the latest (the consensus looks for the first tapering some time in H1, 2022 - too late in our view). A further sell-o in US fixed income, or steepening of US curves in relative terms, will at least reduce the downward pressure on the dollar from a double deficit perspective. It will also weigh on various "fair value" models for the EUR/USD.

The big question for a Dollar investor is whether the Fed is going to stick to its stated interest rate policy. They have said, in plain English, they are not going to taper and not going to raise rates until inflation takes off and not just in a transitory way.

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