- COVID-19 is not beaten yet but vaccine optimism, better COVID-19 news out of Europe and fading US election risk suggest a more positive backdrop for risk assets and FX in 2021. This is expected to put Safe Havens on the defensive including USD but the path to USD weakness is likely to be non-linear.
- Adding to the bearish USD outlook is the Fed’s ultra-dovish stance even as the risk backdrop improves. This likely leads to even lower US real yields and a weaker USD.
- China’s growth recovery is likely to sustain in 2021, contributing to the recovery in risk assets and FX via a stronger CNY.