In This Article:
The US dollar (DX=F, DX-Y.NYB) sees pullbacks on Wednesday as lawmakers continue to deliberate over President Trump's tax bill and the "Sell America" trade reemerges among investors.
TD Securities FX & Macro Strategist Jayati Bharadwaj comes on Catalysts to speak on the dollar's performance as of late and whether it is still behaving like a safe haven asset.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
Let's hone in on the so-called sell America trade. The dollar moving lower today, retreating from some of the positivity we saw earlier in the month. Our next guest is saying the recent run-up in the dollar was an opportunity to sell. Let's get into why with Jayati Bharadwaj, FX and macro strategist at TD Securities. Thank you so much for being here in the studio. We really appreciate it. I know that you expect the dollar to fall by another 5% by the end of this year. To what extent do you see that as perhaps a cushion for stocks and kind of operationalize that relationship for me?
Um, so what's interesting is actually that we've been hearing for the last five years that the dollar is overvalued. In fact, for the last decade, the dollar is overvalued. But interestingly, the dollar's overvaluation has actually dovetailed with foreigners piling money into US assets, particularly US equities. For the longest time, people could just hold US equities unhedged because they would also get a very strong dollar rally to support their portfolio. But now that's not the case anymore. In fact, even if SPX might have tried to jump back to levels pre-Trump, but the dollar has not regained any of its strength. In fact, I think investors now have a very strong reason to hedge their long US asset exposure and the dollar is no longer behaving like a safe haven, unfortunately. I would say it's actually following much more of an emerging market playbook, which is, I think the unfortunate truth that we need to come to terms with.
And I think that's such a fascinating and important point. Do you see the United States behaving like an emerging market right now from an asset class perspective?
Uh, absolutely, because when we're talking about this big, beautiful bill, it's actually also leading to a big deficit concern. We're not addressing the problem that Trump said he would start out to address. And that's actually feeding into risk premia into both the bond markets, which is why yields are higher, and there's also clearly risk premia in the FX markets, which is why the dollar is really struggling to rally here. In fact, the euro is now stepping up as the liquid alternative safe haven, as you mentioned in equities because of attractive valuations, but also in effects because it is cheap and it is now the other safe haven that people are now looking towards.
