Jens Pedersen, Senior Analyst at Danske Bank, believes the greenback is poised to weaken in the longer term.
Key Quotes
“USD weakness came to a halt yesterday after the Fed’s Kaplan emphasised the central bank’s independence, thus reassuring markets that the Fed will keep up the hiking pace notwithstanding recent Trump comments which have (indirectly) hinted at t he desire for a weaker USD”.
“Notably, Powell is due to speak in Jackson Hole today and his tone of voice could matter for the market’s perception of how likely it is that the Fed will ease the hiking pace if the US economy continues to lose momentum, as evident from e.g. yesterday’s Markit PMIs”.
“While not our baseline scenario, we stress that should the Trump administration invoke more explicitly on a ‘weak dollar’ policy e.g. using FX intervention as part of the trade war, a move higher in EUR/USD could happen very swiftly given the distinct fundamental misalignment of the two currencies”.
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