A report by HSBC Holdings’ strategists David Bloom and Paul Mackel
- Mismatch between US rate differentials and a weaker USD is starting to reverse
- Fed looks like to be able to match its dot plots
- Other central banks in G-10 face challenges to begin or extend tightening process
- Expects EUR/USD to fall to 1.15 in Q4 (previously saw 1.25)
- Cites combination of delays by ECB to the gradual exit process
- And also expectation that the US cyclical story will gain more traction
- Sees USD/CNY at 6.40 by Q4 (previously saw 6.20)
- Upward revision is to factor in China’s narrowing interest advantage against the US
It’s too naive to believe the dollar will move in a straight line to their forecasts by year-end, so take it as it is but don’t harp on it. The one thing they failed to mention is the issue of the twin deficits, which I feel at some point in the future the market will actually start to pay attention to – even if it’s just for a little while.
So, that could be a potential setback that dollar bulls may encounter if this rally is to extend into 2H 2018.