Deutsche Bank like USD higher but 2 key risks (data downturn and politics – you know who)

Via a Deutsche Bank Wednesday note:

• “given our negative bias on EUR, CHF, JPY and SEK… we like buying DXY, which has a combined weight of 80% on these currencies and positive carry of more than 2%”
• if central banks cut as expected it’ll leave the USD as the highest yielder, supporting portfolio inflows
• DB say the yield benefit for the USD could be even greater than markets are pricing, DB see a likelihood of the Fed holding high for much longer than expected while others cut more deeply and quicker

DB says that the carry benefit:

• “matters in a low-volatility environment, with the dollar index already approaching last year’s highs in total-return terms.”

On key risks, DB outline two of the biggest:

• An unexpected downturn in US data
• or a pivot to emphasizing a weak-dollar policy from a potential Trump administration