US Tax Reform Set To Leave A Hole In Global USD Funding

Published 02/06/2018, 03:23 AM
EUR/USD
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The repatriation of overseas earnings will remove a large cash pool from the global USD funding market and reduce future flow to the market, which in turn will increase the cost of hedging USD assets over the short and medium term.

In our view, there is a risk the market is currently underestimating the ultimate impact of this on the EURUSD OIS basis. In addition, the market is also underestimating the impact of the upcoming USD liquidity tightening.

Based on this view, we recommend clients hedging USD assets to hedge in 12M EUR/USD FX forward or alternatively out to 2Y in the EURUSD CCS. Furthermore, hedges expiring in the coming months may be rolled forward out to 12M.

To read the entire report Please click on the pdf File Below:

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