Cyclical, structural factors can affect current advantage of US dollar assets although outlook is stable for now: MAS chief

The outlook for the structural advantage of US dollar assets looks to be relatively stable at present, said Monetary Authority of Singapore (MAS) chief Chia Der Jiun at the Qatar Economic Forum on Tuesday (May 20). However, he cautioned that whether this continues to be the case depends on the fiscal trajectory and policies in the US, which may reinforce or take away confidence of market participants.

On May 16, Moody’s downgraded the US’ credit rating from “AAA” – the highest rank for credit reliability – to “AA1”, citing rising fiscal deficits and higher interest payments. Moody’s was the last agency to have a triple-A rating on US credit.

Together with the US dollar weakening this year and 30-year yields on US debt rising, there have been questions over whether US assets are still a safe haven, noted the Bloomberg moderator at the forum.

MAS said that Chia made the following three points at the Qatar Economic Forum:

• There are cyclical and structural factors determining the pricing and confidence in US dollar and US dollar assets.
• On the cyclical side, markets are pricing in slower growth, the prospect of higher inflation and questions over the fiscal trajectory in the US, as well as rotation into other regions and hedging of overweight exposures.
• On the structural side, the US Treasury market is fundamental and systemic to the global financial system, and there is no alternative at this point. The outlook for the structural advantage of US dollar assets is relatively stable for now. On whether this could change, it depends on the fiscal trajectory and policies in the US, and whether they reinforce or take away confidence of market participants.

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