20180809-NATIXIS-The_odd_recent_trend_in_the_US_dollar_5页_816kb

Flash Economics Summary

Core Content

This document discusses the recent and unusual appreciation of the US dollar (USD) since the start of 2018, despite several economic challenges facing the United States. It highlights the factors contributing to the USD's strength and the potential risks that could lead to its depreciation.

Main Points

1. US Dollar Appreciation

• The USD has appreciated against nearly all currencies since April 2018.
• This trend is counter-intuitive given the underlying economic risks in the US.

2. Economic Risks Overhanging the US

• Expansionary US fiscal policy: In a context of full employment, this policy is expected to increase the US external deficit, which historically has led to currency depreciation.
• Protectionism: US tariffs on solar cells, steel, aluminum, and possibly cars are increasing the prices of imported goods, reducing American purchasing power and affecting industries reliant on such imports.
• Real estate bubble: The US real estate market, particularly commercial real estate, is at risk of a bubble burst, which could lead to a slowdown in economic growth and financial distress for borrowers and banks. The household mortgage default rate has already increased.

3. Reasons for Dollar Appreciation

Despite these risks, the USD has strengthened due to:

• Interest rate differentials: The USD interest rate spread relative to other currencies has widened, making the dollar more attractive to investors.
• Risk aversion: The dollar has acted as a safe haven currency, especially since April 2018, even though the increase in risk aversion is partly due to domestic US events.

Key Information

• The document includes several charts (Charts 1A, 1B, 2A, 2B, 2C, 3A, 3B, 3C, 4A, 4B, 4C, 5A, 5B) to support the analysis of the dollar's performance and the economic indicators.
• It is a professional report intended for qualified investors and is subject to legal restrictions on distribution and use.
• The content does not constitute a personalized investment recommendation and is based on public information.
• The views expressed in the report reflect the personal opinions of the authors and not necessarily those of Natixis.

Disclaimer and Regulatory Information

• The document is confidential and must not be disclosed to third parties without prior written consent.
• It is intended for professional and qualified investors only.
• Natixis and its affiliates are regulated in various jurisdictions, including France, the UK, Germany, Spain, Italy, and Dubai.
• The report is not subject to the rules of FINRA and is distributed only to major US institutional investors.
• The information may be subject to change and does not constitute a financial analysis or investment recommendation.

Conclusion

The appreciation of the US dollar in 2018 is attributed to higher interest rates and its role as a safe haven currency, even amid domestic economic risks. The document underscores the importance of monitoring these factors to assess the future trajectory of the USD.