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Dollar: short-term bull, medium-term dull?
Friday 02 April 2021
Research / Market
As the global economy recovers from its worst economic slump since the 1930s, any investment decision will hinge critically on the evolution of the dollar. In the medium to long term, the extra-sized US fiscal stimulus will provide downward pressure to the dollar. At the same time, fiscal solidarity among Eurozone countries points to higher liquidity and sophistication in the euro financial market. We believe that such a process should be bumpy and that it may take some time for investors to find and trust an alternative to the dollar. The link between the US twin deficits and the dollar -- which has held in the long run -- unfortunately has barely worked in periods when dollar-denominated assets have dominated, as shown in this paper. Should the huge fiscal measures generate stronger economic growth -- as both investors and we believe -- we foresee international capital flows remaining anchored to the United States and its assets in the short term...
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