US Dollar: Medium-term depreciation risks build – Nordea
Nordea strategists argue that while near-term risks for the Dollar are broadly balanced, the longer-term outlook remains negative.
Nordea strategists caution that while short-term risks for the US Dollar are currently balanced, the medium-term outlook remains unfavorable. They cite factors such as recent weaker US data, evolving Federal Reserve expectations, low foreign exchange volatility, steepening yield curves, increasing term premium risks, and overvalued US assets as contributors to potential Dollar depreciation.
Over time, Nordea anticipates a continued steepening of the yield curve, which will further weaken the Dollar. They believe that a combination of rising fiscal and term premium concerns, alongside elevated US asset valuations, will eventually outweigh any support from a relatively stable US economy. The recent underperformance of the Dollar can be linked to disappointing retail sales data, while the strength of GBP/USD and EUR/USD can be attributed to better-than-expected retail sales and UoM consumer sentiment data, as well as gold rebounding to $4,400 after opening lower in the day.
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