⚠️⛔️ Nordea: USD Bullish View Risks

• In our recently released forecast update, we hiked our fairly long-standing view of the USD, i.e. now predicting an even stronger USD than previously. In client calls we were then faced with the question what could wrong-foot this view, and came up with the following (shortened) list:

• i) Delta-strain related shutdowns (which may dent the somewhat-hawkish Fed narrative)

• ii) a sudden hawkish reversal by the ECB (as the Teutonic forces manage to grab helm of the sustainable Tower of Babel (or *Skytower*)

• iii) the end to the US' equity market outperformance (equity inflows likely underpinning the USD strongly), or iv) renewed focus on the US' twin deficits (& its empire in decline, post-Afghanistan it should be obvious to everyone).

• Neither of these drivers however look particularly likely to come into play in the near term, hence our USD-positive views (which we - for good or worse - have had since February).

Related to caveat i) above, Robert Kaplan from the FOMC started sounding a bit shakier in his otherwise hawkish tapering view over the past week saying that the Fed would be “watching very carefully over the next month, before the next meeting, whether it is having a more material impact on slowing demand and slowing GDP growth.”. Even if Kaplan is not a voter, it may hint that the Fed at least needs to debate the rise of Delta internally before Powell and his lieutenants turn too concrete on the actual tapering plan. This is a reason to expect Powell to be almost bizarrely imprecise on the topic at the Jackson Hole conference. The Fixed Income market is in our view still hawkishly positioned for tapering, which may lead to renewed curve flattening and long bond yields that struggle to go higher for now.

🔗Full report here: https://corporate.nordea.com/article/67284/fx-weekly-whats-bad-for-biden-is-good-for-the-usd