Credit Agricole CIB Research maintains a bullish bias on the USD into year-end.
"The high-yielding, safe-haven USD has been the biggest beneficiary from the growing market risk aversion. The USD strength has become a worry in its own right, however. Indeed, the currency’s appreciation is forcing many central banks outside of the US to tighten policy even though their economies are not as resilient. Other central banks have to intervene in the FX markets to defend their own currencies and sell USD assets, thus making the USD liquidity scarcer," CACIB notes.
"Moreover, international borrowers are scrambling to get their hands on pricey USD cash as their FX liabilities come due into year-end. As a result, both cross-currency basis swaps and FRA-OIS spreads have recently started signalling that the USD-scarcity is on the rise again. Last week’s meetings of G20 finance ministers and central bank governors signalled no urgency for coordinated action to weaken the USD and, coupled with growing evidence of USD scarcity, could continue to weigh on risk sentiment," CACIB adds.