Swiss Life Asset Managers assumes that a lot of economic optimism is already priced into the USD. It therefore expects the appreciation of the currency to pause.

The Democratic majority in the US Senate has greatly improved the prospects for fiscal stimulus. This has had a positive impact on the USD. Investors have quickly priced in better US growth prospects, leading to a steeper yield curve. They expect key interest rates to rise over the next three years.

Swiss Life Asset Managers expects the European economy to recover more slowly and the ECB not to adjust key interest rates in the medium term. The slightly improved interest rate differential for longer maturities should additionally support the USD. Another positive aspect is that the political pressure on the Fed has eased. The US is refraining from weakening the currency for competition reasons.

For Swiss Life Asset Managers, all these factors are already priced into the USD exchange rates. It therefore expects the currency appreciation to pause, at least in the short term.

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