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Investors and analysts have said the fortunes of the damaged dollar are unlikely to improve in the long run, regardless of who wins the US presidential election on Tuesday, despite its recent rebound against a basket of major currencies, the index the dollar is still down 9% from its March highs, heading for the worst year. Since 2017, it has been affected by expectations that US interest rates will remain near their historic lows for years to come.
And many market players believe, according to Reuters, that a victory for Joe Biden – who currently ranks first in opinion polls – and the Democrats’ sweep is likely to affect the US currency more, as the former vice -President should open the door to the policies he is considering. Investors are reporting negative effects on the dollar, including a strong financial stimulus.
On the flip side, four more years of Donald Trump’s presidency could provide a less clear path for the dollar.
Analysts have said that while Trump’s continued war approach on China is likely to strengthen the dollar’s appeal as a safe haven, negative returns could offset those gains.
And a Reuters poll last month seen by “Al Arabiya Net” showed the euro will rise about 4% to $ 1.21 within a year, according to average analyst expectations.
The report said that for years, relatively high U.S. interest rates relative to other developed countries supported the dollar by making it more attractive to investors looking for yield, a feature than the dollar. lost this year, when the Federal Reserve cut interest rates to combat the economic fallout from the coronavirus pandemic, promising to keep it at historically low levels for years.
“Exchange rate trends will be affected by the downward convergence in interest rates caused by Corona,” said Kate Jokis of Société Générale, in a note to clients, adding: “The impact will remain unequivocally negative for the dollar. “
Real returns
Real, or inflation-weighted, yields on 10-year US Treasury bonds fell below zero in 2020 amid the Corona outbreak. This has diminished the attractiveness of the dollar relative to other asset classes, from stocks to gold.
A Reuters poll in September showed analysts expected the yield to reach 0.93% in 12 months, about half the expected average inflation rate, indicating negative real returns during the year next.
“We do not see a scenario that would prevent the resumption of the current general downward trend of the dollar as US real yields are expected to remain negative,” BNP Paribas analysts wrote.
Investors trimmed the dollar to $ 26.46 billion in the futures market last week after hitting its highest level in more than 9 years at $ 34.07 billion in August, according to NETUSDALL.
The state of uncertainty
The report, seen by Al Arabiya Net, said the uncertainty surrounding the contested election is one reason, as some analysts believe a Trump victory or government split may result in the plan being scaled back or delayed. fiscal stimulus.
With the market being unanimous and largely dependent on Biden’s victory, “Trump’s victory is largely bullish against the dollar,” as TD Securities analysts wrote, “current market prices are not based on news. uncertainty in geopolitical conditions and trade battles of eye-for-eye theory.
Trump has criticized the strength of the dollar for most of his tenure and complained that it gives other countries an unfair competitive advantage in trade.
And while the accelerated budget spending anticipated in a possible Biden presidency may weigh on the dollar, some believe the Democrats’ less confrontational approach to foreign policy could increase the dollar’s appeal as a reserve currency.
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