Has The USD Bear Market Started?

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 The USD has moved from « bump » to « dump » according to William R. Cline at the Peterson Institute. While the USD jumped right after the election of Donald Trump as US president, the currency has been declining since Dec 2016.

Source: FRED, St Louis Federal Reserve

According to the Peterson Institute, there are a number of factors explaining this decline: lower long-term interest rates in the US, political gridlock in the US (from the Affordable Care Act to the funding of government growing deficits), and finally geopolitical tensions among the US and several countries, the most notable being North Korea.

There is also a question behind the fact that the US is running into current account deficit (in the tune of $100bn or 2% of GDP).

Goldman Sachs’s strategists see the USD significantly depreciate against the dollar, reaching a low of $1.40/€ by 2021, against $1.24 end January 2018 (c12% decline).

GS expects the € to outperform among G4 currencies, thanks to healthy economic growth, QE exit strategy and the potential for global asset managers to increase their allocation to the eurozone currency.

The bank also expects EM FX to outperform (see chart below), with South Africa ZAR leading the pack.

Source: Goldman Sachs


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