Potential higher growth in 2021 to encourage Fed to wind down QE

Continued fiscal stimulus will boost US bond yields and then eventually also the US economy in 2021 relative to its peers, increasing the relative attractiveness of the US dollar versus some of its major lower growth, lower-yielding peers (such as EUR, GBP and JPY). Higher US growth in 2021, and perhaps a faster than expected pick-up in inflation, might encourage the Fed to wind down its asset purchase programme sooner than markets are currently pricing, which could see US real yields rising, a USD positive.

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