The dollar’s foreseeable exchange rate dynamics

The starting point for the dollar’s coming exchange rate dynamics is the prospect of higher growth in the United States than in the euro zone, in particular thanks to the extreme fiscal expansion being implemented in the United States. So what can we expect to see? Initially, a widening of the yield spread between the United States and the rest of the world, which will increase global demand for dollars and lead the dollar to appreciate; Then, once US long-term interest rates have stabilised, a stabilisation also in global demand for dollars and, due to the increase in the US external deficit, the appearance of excess supply of dollar s to be held by the rest of the world, leading the dollar to depreciate. This dynamics is very similar to that observed from 2000 to 2008.