Credit Agricole CIB Research discusses the potential impact of introducing negative rates on the USD.
"Turning to the impact of negative rates on the USD, the evidence so far is once again mixed. Whereas negative rates have weighed on the EUR, they had only limited impact on the JPY and CHF. It is also important to note that all of these currencies featured sizeable current account (CA) surpluses. This, when coupled with negative policy rates, should make them, at least in theory, more appealing funding currencies during risk on but nevertheless support them during risk off, when carry trades are unwound. The USD is a CA deficit currency that is supported by unparalleled liquidity and superior returns," CACIB notes.
"Negative rates could destroy the USD relative rate advantage and make it an appealing (liquid) funding currency. Coupled with the need to refinance the US CA deficit, chances are that foreign investors will demand a discount - e.g. a weak USD - to continue to buy the now lower-yielding US assets," CACIB adds.