samedi 21 mars 2015
The Dollar's Near-Term Vulnerability is an Opportunity for Medium and Long Term Investors
Posted on 13:21 by nice news
The market staged a dramatic reversal of the near-term trends in response to the Federal Reserve meeting. In a masterstroke, Yellen dropped the word patience from the Fed's forward guidance and avoided delivering a hawkish signal.
The equity markets bounced back. Bond yields fell. The relentless dollar advance stopped in its tracks. It suffered one of the largest setbacks in nearly a year.
We recognize that the pace of the dollar's ascent has been usual and unsustainable. We anticipate a period of consolidation, potentially choppy, as short-term participant re-enter the market. The dollar spent the last two sessions within the wide range established in the four hours after the FOMC statement. Due to the light economic calendar in the week ahead, the key issue facing market participants is whether the bout of profit-taking on long dollar positions is over.
More broadly, the key fundamental driver in our understanding has been the divergence between the US and most of the other high income countries. It is not simply growth differentials though that is part of it. After all, Japan grew faster than the US in Q1 14 and Germany grew faster in Q4 14. The divergence of monetary policy is the bedrock. That divergence has not peaked, and it is not clear precisely when it will.
It is not just that 15 of 17 Fed officials (Governors and Presidents) expect to raise rates this year, also that the Fed's balance sheet will most likely begin falling next year as instruments it bought several years ago begin maturing. The ECB appears committed to expanding its balance sheet until at least September 2016 and the BOJ's purchases have no clear terminus. The point is that divergence has not peaked, and the peak is still at least six quarters out. The magnitude of the peak is not known and, therefore, can not be priced in as some who are claiming that the dollar's peak is at hand claim. This is not even
The equity markets bounced back. Bond yields fell. The relentless dollar advance stopped in its tracks. It suffered one of the largest setbacks in nearly a year.
We recognize that the pace of the dollar's ascent has been usual and unsustainable. We anticipate a period of consolidation, potentially choppy, as short-term participant re-enter the market. The dollar spent the last two sessions within the wide range established in the four hours after the FOMC statement. Due to the light economic calendar in the week ahead, the key issue facing market participants is whether the bout of profit-taking on long dollar positions is over.
More broadly, the key fundamental driver in our understanding has been the divergence between the US and most of the other high income countries. It is not simply growth differentials though that is part of it. After all, Japan grew faster than the US in Q1 14 and Germany grew faster in Q4 14. The divergence of monetary policy is the bedrock. That divergence has not peaked, and it is not clear precisely when it will.
It is not just that 15 of 17 Fed officials (Governors and Presidents) expect to raise rates this year, also that the Fed's balance sheet will most likely begin falling next year as instruments it bought several years ago begin maturing. The ECB appears committed to expanding its balance sheet until at least September 2016 and the BOJ's purchases have no clear terminus. The point is that divergence has not peaked, and the peak is still at least six quarters out. The magnitude of the peak is not known and, therefore, can not be priced in as some who are claiming that the dollar's peak is at hand claim. This is not even
The Dollar's Near-Term Vulnerability is an Opportunity for Medium and Long Term Investors
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