Jane Foley, Senior FX Strategist at Rabobank, suggests that broad based USD strength has been a strong theme in the markets in recent months and a significant part of the USD’s gains has been triggered by a souring of risk appetite which has triggered a reversal of the capital that flowed in EM markets in 2017.
Key Quotes
“Trade wars and the progressive tightening of monetary tightening by the Fed has been the two obvious triggers of the move. That said, while we have been USD bulls for some months, we would still argue that the greenback does not have a straightforward association with the status of safe haven.”
“The sheer liquidity associated with the USD means that for some investors the USD will always be a safe haven, though in theory the US’s twin budget and current account deficits sour this status.”
“The recent flattening of the yield curve and fears about the pace of medium-term growth in the US have undermined the USD over the past few sessions. However, looking ahead, as long as the pace of activity in the US remains relative firm we expect that the USD will remain well supported.”
“We are forecasting the USD to hold around current levels in the coming months vs. both the JPY and the CHF. However, we continue to expect capital inflows into the USD from a number of EM currencies in the months ahead.”
“We also see potential for further USD outperformance vs. the EUR based on a dovish ECB and the expectations of strains within the EU on immigration and within the EMU stemming from budgetary concerns. We are targeting EUR/USD1.12 on a 12 mth view.”
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