Quotes from the news wire:
In the near-term, though, there is still a risk that the US rebound can extend further following to heavy sell off at the end of last year, the relentless move higher in global equity markets has lost some upward momentum at the start of this year, which is creating a more supportive backdrop for the US dollar in the near-term. The slow initial roll out of vaccines in Europe is also creating some concern that it risks undermining the outlook for global recovery in 2021 and boosting the relative appeal of the US dollar.
The relative attractiveness of the U.S. dollar has been boosted in the near-term by building concerns over the outlook for growth outside of the U.S., the rising probability of President (Donald) Trump winning a second term and further evidence of the ongoing resilience of the U..S economy, however, the Fed's reluctance to tighten policy should help to dampen upside potential for U.S. yields and the U.S. dollar.
The recent escalation in the trade war between the U.S. and China is a dollar positive story. We are relatively pessimistic and feel we are unlikely to get a trade deal before the end of this year, which should keep the dollar well bid, unless we see a more aggressive Fed rate cut cycle in response to recession fears in the U.S., it is difficult to see in the near-term what will trigger a sustainable reversal of the strong dollar trend that has been in place for the last couple of years.
Finance Minister Aso stated strongly that sudden yen strength or weakness is bad and that Japan has the means to intervene, he also attempted to alter market expectations that US opposition will prevent Japan from intervening. Overall, the comments do not significantly change our view that direct intervention to dampen yen strength remains unlikely in the near-term.