China and Europe will return to pre-crisis ‘normal’ quicker than the United States, says international Investment firm EXANTE’s senior analyst Vitaliy Kin, because they were able to combat the spread of COVID-19 quite effectively.
As a result, the USD is facing devaluation. With infection rates on the increase again since the economy was reopened the Fed will continue a long-lasting war to decrease the rates. The printing press running at near full capacity leads to erosion of the US dollar value.
However, Kin adds: “Nevertheless, one should never forget the lessons of the previous crisis, which showed how connected the economies are in the global financial system.”
Before July 2008, USD and the US markets were lagging due to the pressure of the subprime mortgage crisis on the US economy. However, high demand for emerging markets stocks and currencies ended in a large sell-off against the deleverage of the US financial companies.
The currencies of victorious ‘COVID fighters’ may strengthen against the USD as long as there’s interest in high-yield assets on the markets. The kind of deleverage we witnessed in March this year and in September-October 2008 can still collapse the quotes of risky currencies – reversing the latest months’ trends.
Under these circumstances, a bet against USD is justified only by belief in the overall positive dynamics of the global markets. However, we believe that the S&P 500 and USD will remain at the end of the recovery queue. But, if markets begin to decline, the USD may once again become the main choice for investors who decided to sit out the most acute phase of this financial storm.