Extended global risk rally to drive USD weaker - MUFG

FXStreet reports that the positive outlook for the global economy is set to continue driving investor sentiment this week. Risk-on momentum should favour high-beta G10 currencies and EM against the yen and the dollar, in the view of economists at MUFG Bank. 

“We believe there is plenty yet to go in the so-called ‘reflation trade’ with market participants under-estimating the willingness of global policymakers to let the economy run hot and fuel stronger than expected global growth through the remainder of the year.”

“Helping to maintain this momentum in investor optimism is the continued progress in relation to COVID-19 infections and vaccinations. The US and the UK continue to stand out on the vaccination front.”

“With yields in the US higher, this risk-on momentum could well favour high-beta G10 currencies versus the yen, the currency clearly under-performing so far. The backdrop is also favourable for EM versus the US dollar.” 

“Assuming the nominal yield move in the US is relatively contained, positive global equity momentum and higher crude oil and commodity prices should play the more important role of supporting EM currencies generally.”