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Nordea: Two Different Conclusions On Two Different Horizons For The USD

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Nordea suggest that "the USD may remain bid over the coming month or two as the USD liquidity impulse remains tight due to the prefunding of the fiscal deal. When the US Treasury hoards cash at the Treasury General Account at a faster pace than Jay Powell monetizes the debt, the USD usually performs well. This leaves two different conclusions on two different horizons for the USD. First a tad stronger, before clearly weaker. The AIT-regime from the Federal Reserve is the focal point for the USD weakening narrative. The US Treasury's only constraint is basically the 2% inflation target. As long as inflation doesn't average above 2%, the Fed will keep printing and keep monetizing the truckload of debt. This also means that we still have cascades of money printing and fiscal stimulus ahead, even if 20% of all outstanding USDs have already been created in 2020 alone. Fed members have slowly but surely started to roll out their "aye-aye" rhetoric on increased QE as soon as a fiscal deal is in place. Markets should accordingly prepare for a reflationary scenario during 2021."

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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