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With the massive issuance upcoming in the US, either the Fed will have to buy almost everything or else the USD needs to weaken to attract foreign purchases of US Treasuries again, analysts at Nordea brief.

Key quotes

“Essentially no one wants a strong USD currently, but that doesn’t necessarily mean that it will weaken. A stronger dollar generally tightens financial conditions outside of the US, which is kind of counterintuitive since weaker currencies outside of the US in principle should lead to a competitive advantage.”

“Some reasons why a strong USD is bad news for growth are that EM countries have borrowed in USD, firms who have borrowed in dollars see debt burdens grow in local currency and the financial sector also empirically becomes less keen to lend out when the USD is strong.” 

“The last thing the world needs right now is an even stronger USD; in such case, we wouldn’t rule out a new Plaza accord like attempt to weaken the USD in a coordinated way. Everyone’s in the same boat now.”