Here Is Why The USD Will Rally Even Without Higher

Bond markets  were a significant part of the global storm, we’ve seen recently. A fall in the greenback was accompanied with a fall in US bond yields. Do they have to be linked also in the future? Not necessarily.

Is the dollar ready for a new rally?  Greg Gibbs from RBS offers his interesting views:

Here is their view, courtesy of eFXnews:

Focus of the day:

“The fall in US rates in the last month appears excessive in light of the on-going strength in US economic data. A key factor driving down US rates was the strength of the USD (several key Fed members highlighted that the strong USD and weaker global growth may delay policy tightening in the US).

Even though we may be in a low global rates environment for a long time, the US economy is set to be a growth leader and is within sight of reaching its full employment mandate.

Low commodity prices and low long term yields will tend to support US consumer and housing demand.

It is possible to imagine a scenario where the Fed does not raise rates much over the year(s) ahead, but this is likely because it will be forced to allow a stronger USD do the effective policy tightening needed. Many stronger countries over recent years have had to accept lower rates than expected and compared to previous cycles because of the strength of their currencies.

As such, we expect to see the USD rally even if its yield advantage does not improve much.”

Greg Gibbs – RBS

For lots  more FX trades from major banks, sign up to eFXplus

By signing up to eFXplus via the link above, you are directly supporting  Forex Crunch.