US Dollar: Election-driven correction and positioning – Societe Generale

Societe Generale’s Kit Juckes discusses the Dollar’s post-election weakness as US equities and technology stocks initially sold off before recovering. He notes US strategists see a strong economy and limited fiscal impact from a Democrat-controlled Congress, suggesting the Dollar dip may be temporary. However, heavy long-Dollar positioning and elevated geopolitical and economic uncertainty could allow further downside next year.

Dollar under pressure after US elections

"The suggestion is that as foreign investor appetite for Treasuries wanes, while appetite for US equities surges, the dollar rises with equity indices."

"So the dollar fell with the equity indices, but they have recovered their poise, while the dollar remains under pressure."

"On that take, nothing changes and we should buy the dollar dip, once positioning has been cleaned up."

"Add that to lopsided positioning among FX traders (lots of dollar longs, with notable shorts in the euro, the pound and the Australian dollar (but not the yen), and the current correction can go further."

"Overall, I’m minded to conclude that 1) the market was very long dollars and the elections are a catalyst for position reduction; 2) the level of economic, geopolitical and market uncertainty is very elevated, which points to choppy FX markets; And 3) if regulation, or party politics slow the US economy, then the dollar has plenty of room to fall next year, but it’s too early to conclude that is what will happen and in the meantime, I’m loath to get over-excited about this dollar correction while oil prices remain elevated and the conflict in the Gulf is unresolved."

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