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11 Dec 2014
Fundamentals still remain supportive for a stronger US dollar - BTMU
FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ, notes that the US dollar has corrected modestly with the USD index reversing its gains, but the strong economic data and expectations surrounding Fed’s rate hike still remain supportive for a stronger USD.
Key Quotes
"The US dollar has corrected modestly lower so far this week with the dollar index reversing its gains recorded earlier this month as it has fallen back towards the 88.00-level. Long US dollar positions have been pared amidst the sell-off in risk assets this week which has extended further overnight after the S&P500 index recorded its largest daily decline since mid-October."
"The yen has been the main beneficiary from the more risk-averse trading conditions in the near-term which has prompted a modest reversal of its recent sharp decline since late October. The sell-off in risk assets has been triggered by heightened investor concerns over Fed rate hikes next year, slowing growth in China, and political uncertainty in Greece."
"The sharp ongoing decline in price of crude oil is also prompting investor concerns over the strength of global growth although we still view developments more as a positive supply shock for the global economy which should help to boost growth next year.”
"Increasingly elevated long speculative US dollar positions have been caught up in the position shake-out in the near-term which is weighing modestly on the US dollar. There is a risk that long US dollar positions could continue to be lightened heading into year end."
"However, it is still likely that US dollar weakness will prove only temporary as the relative fundamental story in favour of a stronger US dollar remains unchanged. The US economy is continuing to outperform and the Fed appears set to take another step closer to raising rates next year when it may soften its low rates by dropping the considerable period time commitment. The other major central banks of the BoJ and ECB will be more sensitive to increasing downside risks from falling energy prices given already low inflation which reinforces the case for further monetary next year which should continue to undermine both the yen and euro."
Key Quotes
"The US dollar has corrected modestly lower so far this week with the dollar index reversing its gains recorded earlier this month as it has fallen back towards the 88.00-level. Long US dollar positions have been pared amidst the sell-off in risk assets this week which has extended further overnight after the S&P500 index recorded its largest daily decline since mid-October."
"The yen has been the main beneficiary from the more risk-averse trading conditions in the near-term which has prompted a modest reversal of its recent sharp decline since late October. The sell-off in risk assets has been triggered by heightened investor concerns over Fed rate hikes next year, slowing growth in China, and political uncertainty in Greece."
"The sharp ongoing decline in price of crude oil is also prompting investor concerns over the strength of global growth although we still view developments more as a positive supply shock for the global economy which should help to boost growth next year.”
"Increasingly elevated long speculative US dollar positions have been caught up in the position shake-out in the near-term which is weighing modestly on the US dollar. There is a risk that long US dollar positions could continue to be lightened heading into year end."
"However, it is still likely that US dollar weakness will prove only temporary as the relative fundamental story in favour of a stronger US dollar remains unchanged. The US economy is continuing to outperform and the Fed appears set to take another step closer to raising rates next year when it may soften its low rates by dropping the considerable period time commitment. The other major central banks of the BoJ and ECB will be more sensitive to increasing downside risks from falling energy prices given already low inflation which reinforces the case for further monetary next year which should continue to undermine both the yen and euro."