Credit Agricole: The return of USD ‘frown’; is a ‘Truss Moment’ inevitable?

Credit score Agricole sees the return of the “USD frown”—the connection between USD and US fairness/FI efficiency—driving near-term USD weak point. However they dismiss fears of a full-blown disaster akin to the UK’s “Truss second,” citing continued international demand for Treasuries and the USD’s reserve standing.

Key Factors:

• USD Promoting on Danger Aversion:
  Traders are promoting USD as US equities weaken and Treasury yields rise, fearing capital outflows and fragility in US fastened earnings following Moody’s sovereign downgrade.

• Political and Coverage Considerations:
  Stalled fiscal stimulus talks in Congress and Fed commentary on stagflation dangers have amplified worries over the macro backdrop and bolstered the USD’s vulnerability to danger sentiment.

• However No ‘Truss Second’:
  Credit score Agricole doesn’t anticipate a disorderly selloff in US debt akin to the UK gilt disaster below PM Liz Truss. They argue long-end yields might stabilize, particularly given the USD and USTs stay international reserve anchors.

• Structural USD Assist Intact:
  Regardless of near-term volatility, international demand for USD property stays resilient, which ought to cap USD draw back, particularly towards currencies from economies with weaker fundamentals or decrease yields.

Conclusion:

Whereas the USD is below strain from fairness and bond market jitters, Credit score Agricole sees this as a tactical adjustment quite than a structural shift. The market will not be pricing in a systemic credibility shock just like the UK confronted in 2022, and the USD’s reserve standing ought to restrict sustained underperformance.

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