samedi 4 avril 2015
US Dollar Correction Continues
Posted on 11:51 by nice news
The disappointing US employment data reinforces our expectation that after a strong advance in Q1 the US dollar will correct lower in Q2. The euro's performance is also broadly consistent with the US experience in which the dollar sold off in anticipation of QE and than rallied on the fact. The euro recorded its low within a week of the ECB's launch of its public sector purchase program.
Our long-term constructive outlook for the dollar remains intact and driven by the divergence of monetary policy trajectories. We do not expect any one high frequency report to alter the calculation of monetary policy. Fed officials, including the leadership, recognize that the economy had lost momentum in Q1 15 but understand the headwinds to be transitory.
That puts the onus on Q2 to show improvement. We anticipate that improvement to be led by the consumer, who pulled back in Q1 after going on the biggest shopping spree in a decade during Q4 14. The rise in hourly earnings, the relatively cheap gasoline, and an increase in savings will provide the fuel. The strong March auto sales figures give an inkling of what we expect.
Even before the jobs data, our reading of the technical condition warned that the dollar's downside correction may not be over. The pre-weekend price action, even with the light participation, reinforces this judgment. From a high level view, this offers emerging markets an important reprieve. There is scope for their assets and currencies to do better.
The MSCI World Index (Developed) has outperformed the MSCI Emerging Markets equities over the past six months but has begun lagging recently. This trend is poised to continue over the next several weeks. However, it is mostly tactical and opportunistic, as we remain concerned about the end of commodities super-cycle, slower growth in China and the impact of higher US rates eventually. We continue to favor Asia and Eastern Europe over
Our long-term constructive outlook for the dollar remains intact and driven by the divergence of monetary policy trajectories. We do not expect any one high frequency report to alter the calculation of monetary policy. Fed officials, including the leadership, recognize that the economy had lost momentum in Q1 15 but understand the headwinds to be transitory.
That puts the onus on Q2 to show improvement. We anticipate that improvement to be led by the consumer, who pulled back in Q1 after going on the biggest shopping spree in a decade during Q4 14. The rise in hourly earnings, the relatively cheap gasoline, and an increase in savings will provide the fuel. The strong March auto sales figures give an inkling of what we expect.
Even before the jobs data, our reading of the technical condition warned that the dollar's downside correction may not be over. The pre-weekend price action, even with the light participation, reinforces this judgment. From a high level view, this offers emerging markets an important reprieve. There is scope for their assets and currencies to do better.
The MSCI World Index (Developed) has outperformed the MSCI Emerging Markets equities over the past six months but has begun lagging recently. This trend is poised to continue over the next several weeks. However, it is mostly tactical and opportunistic, as we remain concerned about the end of commodities super-cycle, slower growth in China and the impact of higher US rates eventually. We continue to favor Asia and Eastern Europe over
US Dollar Correction Continues
Categories: US Dollar Correction Continues
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