US Dollar could depreciate is a new perception - Natixis

The perception that the dollar could depreciate is a new perception, which has a number of effects on international capital flows, interest rates, share prices and exchange rates and perhaps also on monetary policies (more restrictive in the United States, more expansionary in the rest of the world), explains Patrick Artus, Research Analyst at Natixis.

Key Quotes

“Financial markets until recently expected the dollar to appreciate, given the prospect of a rate hike by the Federal Reserve and the sentiment that other regions (China, euro zone, emerging countries) were facing problems.”

“But the consensus is now shifting towards expectations of a depreciation of the dollar, given the improvement in the other regions’ situation and the risk of a US economic slowdown.”

“An expected depreciation of the dollar will reduce capital flows to the United States; given the US external deficit it will help drive up dollar long-term interest rates and trigger a downward correction in US equities; it will reinforce the end of the capital outflows in China and the return of capital to the euro zone, it will discourage capital outflows and portfolio diversification in Japan. It is likely to have an impact on monetary policies.”