Market news
26.03.2021, 08:00

US dollar to depreciate once yield spread against the rest of the world stabilises – Natixis

FXStreet reports that Natixis said that the appearance of excess supply of dollars held by the rest of the world will lead the dollar to depreciate.

“The strong expected growth in the US is visibly driving up US long-term interest rates. This has resulted in an increase in international demand for dollars, which has led to an appreciation of the dollar in the most recent period. Then, dollar long-term interest rates will stabilise, leading also to a stabilisation of international demand for dollars. Yet the sharp growth in US domestic demand will lead to a significant deterioration in US foreign trade.”

“As long as the dollar’s interest rate is rising, demand for dollars expressed in foreign currencies will rise at a constant exchange rate, balancing the increase in the supply of dollars.”

“Once the dollar’s interest rate has stabilised, the only way to increase non-resident demand for dollars expressed in dollars, when it is stable expressed in the rest of the world’s currencies, is a depreciation of the dollar.”

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