FX.co ★ Saxo Bank: stronger USD too toxic for global economy

The weaker US dollar ensures strength of the global economy, chief currency strategist at Saxo Bank John Hardy has reached this conclusion. Mulling over the prospects of the global economy, the expert pointed out that the world does not need the firm dollar as it is going to stall an economic recovery worldwide in the wake of the pandemic-induced crisis.

There is a strong likelihood that the unprecedented stimulus program which is being implemented in the US will not only rev up but also overheat the national economy in the coming few months. In turn, this is sure to inflate yields of US bonds with long-term maturity. As a result, the problem of the overvalued US dollar will resurface again, John Hardy explains.

“Going into Q4 and 2022, unless US savers decide to drastically increase their already high savings rates and/or new foreign buying interest comes on board for US government paper, the issuance gap will have to be closed somehow or it will crowd out investment elsewhere and send real interest rates unacceptably high,” Hardy says. He notes that the weaker US dollar is the essential condition for invigorating global asset prices and evident economic growth.

To sum up, the expert is certain that the stronger US currency is “too toxic” for the global economy. The question is whether the US Treasury and the Federal Reserve are going to control a steepening yield curve and what measures they are going to take. In Q1 2021, the greenback received a boost from soaring yields of US Treasuries. The thing is that the greenback wins favor with investors as a safe-haven asset in the time of economic turbulence. Thus, amid buoyant demand for the US dollar, it will be hard for the US monetary authorities to push it down for long.