Last week’s gloomy outlook for global growth has caused an exodus from risk assets such as equities and commodities. The main beneficiary of this repositioning has been the USD.
This flight to the USD has taken place despite the fact that there has been no improvement in the structural position in the US. The USD has benefited simply because no alternative safe haven exists. The JPY and CHF have both been taken out of play by official intervention to halt their appreciation; and other countries with the structural characteristics of safe havens do not possess currencies with sufficient liquidity to absorb safe-haven flows.
Therefore, demand for the USD has increased because there is nowhere else to hide. The market has turned to the USD by default, attracted by its high liquidity and reserve status. When the outlook for global growth improves, we expect the USD to retrace. In the meantime, if one is concerned about the economic outlook, a simple way to trade this view is to sell EUR/USD.
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HSBC Global Research