Synopsis:

Credit Agricole sees the return of the "USD frown"—the relationship between USD and US equity/FI performance—driving near-term USD weakness. But they dismiss fears of a full-blown crisis akin to the UK’s "Truss moment," citing continued global demand for Treasuries and the USD’s reserve status.

Key Points:

• USD Selling on Risk Aversion:
  Investors are selling USD as US equities weaken and Treasury yields rise, fearing capital outflows and fragility in US fixed income following Moody’s sovereign downgrade.

• Political and Policy Concerns:
  Stalled fiscal stimulus talks in Congress and Fed commentary on stagflation risks have amplified worries over the macro backdrop and reinforced the USD’s vulnerability to risk sentiment.

• But No 'Truss Moment':
  Credit Agricole does not expect a disorderly selloff in US debt akin to the UK gilt crisis under PM Liz Truss. They argue long-end yields may stabilize, especially given the USD and USTs remain global reserve anchors.

• Structural USD Support Intact:
  Despite near-term volatility, global demand for USD assets remains resilient, which should cap USD downside, especially against currencies from economies with weaker fundamentals or lower yields.

Conclusion:

While the USD is under pressure from equity and bond market jitters, Credit Agricole sees this as a tactical adjustment rather than a structural shift. The market is not pricing in a systemic credibility shock like the UK faced in 2022, and the USD’s reserve status should limit sustained underperformance.