The USD should be rising 20% in YoY terms instead of falling 15% according to relative growth expectations. Unless the Biden-administration annihilates the USD, there are strong reasons to expect a sound greenback comeback this year, per Nordea.
Key quotes
“As the Fed seems ‘hands off’ for now with regards to US 10y Treasury bonds, then we would argue this is good news for the dollar. The twin deficit idea can be boiled down to either i) US yields needs to rise, or ii) the USD needs to weaken so as to attract enough foreign funding of the US budget and current deficits. It thus follows that higher US yields means less downside pressure for the dollar.”
“In terms of relative growth forecasts, or in terms of revisions to said forecasts, the USD should be in a very strong spot – rising 20% yoy instead of falling 15% YoY.”
“Average debt servicing costs are lower than ever, more than 1/3 of the debt is effectively already cancelled via central bank ownership (bond coupon payments are being paid back to Treasuries) and real rates are clearly negative. The US Treasury would even be able to fund the entire Biden-nomics package via 10yr bonds without increasing the average interest rate in the debt portfolio.”