Barclays says that the dollar “offers the best of both worlds”
The firm says that the dollar is the place to be with G10 nations set to lead growth against all but a handful of emerging markets (US of course one of the leaders in the recovery), and the greenback also benefits as the best-performing safe haven in the market.
Building on the dollar smile theory, the firm adds that the dollar is at “both ends at once, like Schrodinger’s cat in two simultaneous states, as markets bounce between radical post-COVID uncertainty and ebullience on surging US data”.
As such, “the dollar’s Schrodinger’s-cat grin is to keep it buoyant at elevated levels, but not lead to significant appreciation” as it still remains overvalued, according to Barclays.
The firm also shared some insights on some other currencies as well:
EUR – To underperform “mainly due to the euro area’s sluggish economic recovery, which will create a growth gap not only between the euro area and the US, but also between the euro area and the UK, Scandinavia and the antipodeans. This is largely manifested by the opening gap between US and euro area long-term rates, but it should be also reflected by FX.” They forecast EUR/USD to be at 1.14 at year-end.
JPY – To “remain under downward pressures in the coming quarters due to reduced safe-haven demand amid global growth recovery, widening foreign-domestic yield differentials, and the potential revival of capital outflows through both investment and M&A.” They forecast USD/JPY to be at 111 at year-end.
GBP – To outperform both the dollar and euro on the quick vaccine rollout and “generous fiscal stimulus”. They forecast GBP/USD at 1.40, EUR/GBP at 0.81 at year-end.