The US Dollar is set to weaken, while FX markets could experience a lot of volatility going forward, analysts at Nordea say.
US economy to continue to do well on a global perspective
We believe that lower rates globally will continue to support economic activity and risk sentiment, lowering the appeal of the USD from a safe-haven standpoint. Moreover, our expectations of more near-term rate cuts in the US relative to the Euro area and others such as Japan, the UK and Norway point towards a weaker USD in the years to come. This does not mean that we see a massive USD weakening ahead.
We expect the US economy to continue to do well on a global perspective. Furthermore, geopolitical challenges and the outcome of the US presidential election could see the USD surprising positively ahead.
If Trump is elected again, a highly likely outcome as it seems now, the USD should again benefit from its safe-haven status. However, deficit worries are more likely to appear under Trump than Biden. If such worries appear again, it could weaken the USD more than we have pencilled in. Both the outcome of key events ahead and how markets perceive the outcomes are challenging to predict, which will continue to contribute to volatile FX markets.
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