USD: Haven demand versus structural headwinds – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad argues the US Dollar is supported in the short term by haven flows and elevated Dollar funding needs during market stress. However, the bank maintains a structural bearish view on the Dollar, citing declining confidence in US trade and security policy, worsening fiscal credibility, and increasing politicization of the Federal Reserve.

Short term support, long term downside risks

"In the short term, USD can continue to benefit from haven bid driven by dollar funding needs."

"Demand for short-term USD funding tends to spike during periods of stress due to the dollar’s dominant role in the global financial system (trade invoicing, cross border lending, global bond issuance, FX reserves). When stress hits, foreign market participants scramble for dollar to secure liquidity to roll over debt and meet liquidity needs."

"Structurally, we remain bearish USD because of fading confidence in US trade and security policy, worsening US fiscal credibility, and the ongoing politicization of the Fed."

"The US Trade Representative's office initiated yesterday Section 301 of the Trade Act to bypass the legal constraint imposed by the recent Supreme Court (SCOTUS) tariff ruling. The countries under investigations are China, the European Union, Singapore, Switzerland, Norway, Indonesia, Malaysia, Cambodia, Thailand, Korea, Vietnam, Taiwan, Bangladesh, Mexico, Japan, and India."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)