【英文】瑞信报告：美元：长期熊市的开始（38页）

Credit Suisse economists believe that the Fed will not allow bond yields to rise and if necessary  will commit to some form of yield curve control with a target on 3- to 5-year yields (see US  Economy Notes: How to pay for it without inflation, 13 Jul). This means the Fed will most likely  have to buy much more than the ECB. If the Fed expands its balance sheet more than the ECB, the dollar tends to weaken (so far this year, the Fed has expanded its balance sheet by 13% of  GDP compared to 14% by the ECB). We think that going forward, the Fed will have to print more than the ECB. Since May it has  funded only 20% of net issuance and we suspect this will rise.

There are two ways central banks could see the USD weakness as a threat. First, the Fed  might decide USD weakness has gone too far, threatening its inflation target. Second, the ECB  or the BoJ could decide that the strength of their currency is causing too much economic  damage and intervene aggressively or even cut rates. However, we see a period of benign neglect on the dollar (from a policy point of view) lasting  much longer than normal owing to: Low US inflation: US inflation remains far below target (core PCE is 1%), with the Fed  suggesting that it will allow inflation at a minimum to overshoot its target by a similar  amount to which it has undershot. This implies they would accommodate at least 2.5-3%  core PCE. Moreover, imports in the US are only 14% of GDP (which is relatively low by  global standards) and up to 90% of imports are dollar-denominated. 

10% off the dollar  trade-weighted adds only 0.2% to total core PCE one year later. BoJ and ECB action might do more harm than good: The ECB and the BoJ have so  far been very quiet on their currency strength. In fact, the ECB by its actions in March  (when it did not cut rates despite forecasting the worst recession on record) very clearly  indicated that there seems to be a huge pain threshold before it would cut rates further.  We believe central banks are now realizing that NIRP is counterproductive (it leads to asset  bubbles that can hurt growth, exacerbates inequality, hurts banks’ profitability and ability to  lend, and creates ‘zombie capitalism’, where firms without viable business models are kept  alive with cheap credit).  Additionally, any efforts to cap currency strength could potentially lead President Trump to  label a country a currency manipulator.