FX intervention could lead to an even strong dollar down the road – Nordea

Is global intervention on the cards to weaken the US Dollar? Economists at Nordea do not think so and see an even stronger USD ahead.

Uncoordinated FX intervention will not stop the USD rally

“The FX intervention whereby countries are actively intervening to prop up their currencies against the USD may dampen the strengthening of the USD in the short to medium-term. But countries do not have an endless amount of USD at disposal to sell, meaning that the FX intervention will fail when their USD coffers run dry.”

“FX intervention involves selling of US Treasuries, which adds upwards pressure on US rates and leads to a stronger USD in isolation. This FX intervention USD doom-loop could lead to dollar overshooting – especially when several central banks are enforcing the loop.”