Donald Trump’s victory in last week’s US election may not cause the US dollar to depreciate as many investors expected, according to BlackRock.
Commenting on the presidential election results, BlackRock chief investment officer for global fixed income Rick Rieder said a declining US dollar was one of the “common misconceptions that investors should guard against”.
“While some believed that the US dollar would ultimately decline on a Trump victory, we think this view is mistaken and the dollar is more likely to range-trade for a time, or even strengthen, depending on the direction legislation and policy take in 2017,” Mr Rieder said.
Additionally, Mr Rieder cautioned that the potentially higher US dollar could, alongside trade policy uncertainty, put increased pressure on emerging market debt, though he acknowledged even this was uncertain.
“As we’ve argued in recent months, the need for income isn’t going away, and the carry potential – particularly in the front to middle segments of select emerging market country rates curves – should still be attractive,” he said.
“The thing to watch will be capital flows, as a good amount of money has shifted in emerging market debt, but it will be important to see if investors have the patience and wherewithal to stick out any near-term headline risks.”
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