SINGAPORE – The US dollar is set to weaken further, amid market opinion that geopolitical risks are dwindling after the election, and analysts say the next stimulus package will be less than expected.
Citi Private Bank strategists have further predicted a weaker dollar if the Biden administration reduces uncertainty in international trade policy.
“The victory of President Elect Biden means a return to a more traditional regime. As the president’s province, it will make a major difference in the way foreign policy is conducted. The Alliance building will return. The threat of tariffs will be the first ‘negotiation tactics to end,” said David Bailin and chief investment strategist and chief economist Steven Whiting wrote in a note published Monday.
This will benefit global financial markets, especially emerging markets, they said.
“The biggest post-election clarity is for global trade. U.S. foreign policy will enter a more predictable phase without increasing the risk of tariffs. We see a reduction in US decals and potential in emerging markets,” he wrote.
On Friday, the US dollar index, which tracks the greenback against its peers’ basket, hit a low of hit૨..456 – the lowest level since September 2. Fast diving around 92.162 on Monday.
In Asian trade on Tuesday, however, it is tied to the Pfizer vaccine, which is expected to trade at 928..81 – but is below the level of 94 seen earlier this month.
“The amazing thing is… after the election result… we’ve not only seen (sh fashore Chinese yuan) and Asian currencies gain … but we’ve seen more broad dollar sales – all in all,” Adam Margolis of JPMorgan Private Bank told CNBC on Monday. “The currencies of the G10,” he told Street Signs Asia. Notably, it also includes some emerging currencies.
Asian currencies have strengthened over the past few days, with the Chinese yuan hitting a 28-month high on Monday and appreciated further in the last trade at 6.61 on Tuesday morning. According to Reuters, the Japanese yen hit an eight-month high of 103.18 against the dollar on Friday.
Margolis, the bank’s head of foreign exchange, commodities and rates, said there was a view that the Biden victory would reduce the overall geopolitical risk premium, and that it would have “spillover effects” outside Asia.
He added that the theme of the play is to continue to look for “opportunities” to trim overweight contacts on the dealer.
“I think it’s important, is the idea that low financial stimulus is likely to lead to lower yields at least initially,” he said. “I think putting the ounce back on the Fed, effectively communicating that we’re going to have a period of negative real rates for a long time, is important.”
As the rate goes down, so does the U.S. The dollar affects the dollar because investors may leave dollar-for-property assets – which yield lower yields.
Brokerage Philip Futures also said in a note on Monday that the dollar could weaken if the second stimulus package is lower than expected.
“The picture is becoming increasingly bearish for the US dollar,” on signs that Fed money printing could be deployed to boost the economy rather than government spending.
A split Congress – holding in the Republican Senate and House of Democrats – could mean a smaller stimulus package. Philip Future said pressure is mounting on the Fed to increase its bond-buying program and other economic support policies and in turn put pressure on the dollar, Philip Future said.
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