US exceptionalism wanes as global investors pivot away - Rabobank

The concept of 'US exceptionalism' covers many specific themes. For academics it may have referred to the US's ability to attract bright minds from around the world and generate cutting edge research. Combined with the country's entrepreneurial culture and venture capital infrastructure, this has helped it to spawn and grow most of the world's largest tech companies. In turn tech has enabled US labour productivity in the US to grow at a faster pace than its peers, Rabobank's FX analyst Jane Foley reports.

Creditor countries gain as 'Sell America' theme takes hold

"In recent years, strong labour productivity has helped the economy defy expectations that growth will slow. Consumption has remained mostly robust with consumer confidence supported by ample job vacancies and, in the pandemic period, by generous fiscal giveaways. For years, the robustness of US growth combined with the credibility of its institutions fed the 'buy America' trade with savers from all over the world keen to be involved. That has now changed."

"This year has brought periods when US equities, treasuries and the USD have all dropped at the same time illustrating that 'sell America' is the dominant theme. Creditor countries have been the beneficiaries. This is evidenced not just in this year's gains in the JPY and the EUR vs. the USD but also in the rallies in currencies such as the TWD and SGD.  How far the pressure on the USD will extend depends on the extent to which the policies of the current US administration undermine the growth potential of the US and erode the trust of its trading partners and allies."

"It also depends on how fast the US's trading partners can fix their own structural issues. While we still see scope for profit-taking in favour of the USD on a 1-to-3-month view, we now see this as likely to be more modest than our previous forecasts. We continue to see EUR/USD rising to 1.20 around H2 next year and see scope for USD/JPY to reach around 135.00 in that time frame."