USD: Risk tilting toward an earlier or faster rate of depreciation – Wells Fargo

Analysts at Wells Fargo expect some US dollar consolidation for the time being and some gradual US dollar softness over the medium term. They point out that after an initial period of strength, their view for the greenback is for gradual depreciation over time, with risks appear to be tilting toward an earlier or faster rate of depreciation.

Key Quotes: 

“Recent U.S. economic data have been sturdy, a trend that should continue and be supportive of the greenback. A renewed rise in U.S. bond yields would also be a supportive factor. That said, if the Federal Reserve does not follow through with monetary tightening for an extended period, we eventually anticipate some slippage in the U.S. dollar, especially as international growth picks up. Risk-sensitive emerging and commodity currencies in particular should perform solidly if the global economic and market environment improvement.”

“Even in the context of a favorable U.S. economic performance, we see potential for only moderate U.S. dollar gains in the near term, and some softness in the greenback over the longer term.”

“The smooth progress to date in vaccinating the U.S. population against COVID combined with accommodative economic policy has also been supportive of financial market sentiment, including equity markets. Should equities continue to move higher risk sensitive should benefit, and the U.S. dollar could soften more quickly than we currently anticipate.”