EXCHANGE RATES
From our point of view, US-China trade war escalation is dollar-positive, because of the safe-haven appeal of the dollar… More generally, concerns about global growth are inherently supportive for the dollar (as a reserve currency), even if the US economy is slowing as well Interest-rate differentials remain one of the major driving forces of the US dollar in the short run, especially against the euro. US dollar is also driven by the real growth differential between the US and other major DM economies US dollar is supported by repatriation flows by US entities cutting foreign exposures, and by the fact that the amount of negative yielding bonds outstanding reaches a new record On the other hand, Fed’s dovish stance, future rate cuts and rising US deficit offer bear arguments on the dollar. We still think that the US dollar has some room to go up over the short to medium-term. Over longer horizon, we expect the expanding US budget deficit to put pressure on the dollar.
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