Now’s the Time to Bet on a Weaker U.S. Dollar
by Karim Rahemtulla
Source: Wall Street Daily
http://dailytradealert.com/2018/09/28/n ... -s-dollar/
1. Inflation May Not Be Overheating
2. Powell Sees Risks Ahead
3. Fed’s Clarida said the Fed is getting closer to neutral and that there is “some evidence” that the world economy is slowing.
Currencies which have shown a high correlation with the CSI 300’s performance since summer have either, as in the case of the Taiwan dollar and the South Korean won, stabilised against the US dollar, or have begun significant recoveries from the lows of late October – here he cites the Indonesian rupiah, Australian dollar and Indian rupee.
The Japanese yen might be another major beneficiary if the US dollar loses its broader allure. Traders will have noted the recent announcement of Japan’s US$1.5 trillion Government Pension Investment Fund that it is now able to hedge its foreign currency exposures, if it so chooses.
The Bloomberg dollar index tumbled 0.5 percent on Wednesday, making it the worst day since January, after Fed policy makers unexpectedly signaled they’d hold their rates benchmark steady all year because of troubling signs from the economy.
Among other problems, that could undermine the currency’s appeal by cutting into any yield advantage on dollar-denominated assets.
The Fed’s new stance “partially” vindicates the bears, but for the dollar to weaken more, economies outside the U.S. will need to perk up.
The Bloomberg dollar index tumbled 0.5 percent on Wednesday, making it the worst day since January, after Fed policy makers unexpectedly signaled they’d hold their rates benchmark steady all year because of troubling signs from the economy.
Among other problems, that could undermine the currency’s appeal by cutting into any yield advantage on dollar-denominated assets.
The Fed’s new stance “partially” vindicates the bears, but for the dollar to weaken more, economies outside the U.S. will need to perk up.
The currency is set to extend losses as a truce in the U.S.-China trade war and signs that global growth is improving sap demand for haven assets;
At the same time, the Federal Reserve has taken a dovish tilt, which will help shrink the yield premium offered by U.S. Treasuries.
“The primary driver of dollar weakness will be a shift in relative economic growth rates between the U.S. and the rest of the world.”
Goldman Sachs argues the dollar will only decline if the euro and yuan appreciate significantly, and it says that looks unlikely for now.
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