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By Alamin Hussain 30-06-2020
In: top-picks | Markets and Investing

Bearish USD calls and BlackRock are bullish on European government bonds

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What is the outlook for the US dollar? (JP Morgan AM, 5 min read)  A federal funds rate remaining at zero for the next two years, alongside better growth and equity market performance overseas will make US financial assets less attractive and put pressure on USD in the long term. However, short term factors such as COVID uncertainty and US-China tensions favour the USD.  [Bearish USD (Long Run)]

The COVID Shock to the Dollar (Project Syndicate, 7 min read) The USD could plunge by 35% in next 2-3 years predicts Morgan Stanley’s former chief economist , Stephen Roach, driven by negative domestic savings and the COVID policy response. Protectionism, deglobalisation and decoupling will add to the dollar’s decline.

Why We Are Warming up to Europe (BlackRock, 5 min read) They remain overweight on European peripheral government bonds given significant policy support in Europe and expectations for a stronger H2 recovery than in the US. European equities may also be upgraded. [Bullish European Peripheral Government Bonds]

US 2020: the COVID election – part i (State Street, 5 min read) ‘From a market perspective, the worst outcome would be a narrow loss for President Trump that he refuses to accept, plunging the US into a constitutional crisis far worse than the 2000 Florida recount’. Under this scenario, expect moves to safe havens such as the yen, Swiss franc and gold. But capital outflows could also be driven by home bias; triggering the end of the strong dollar cycle. [Bearish USD]