Barclays Research discusses the USD outlook and sees a scope for another 3% rally against its key major counterparts.
"In the near term, another COVID flare-up in China, natural gas shortages in Europe and sticky inflation prints in the US have the potential to drive the dollar up another 3% against key major counterparts. To sell the dollar here is to underwrite those risks and it may still be too early for this," Barclays notes.
Easing of tail risks and policy convergence can help reduce USD overvaluation one year out. Our economic forecasts envisage moderation in US activity and inflation, a gradual but steady rebound in Chinese activity and an ultimate bounce back to European activity after a sharp slowdown. Therefore, we expect dollar overvaluation to moderate in the medium run. For reference, we have kept our EUR$ 12m forecast unchanged at 1.10," Barclays adds.
For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.
