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8 May 2015
Concerns about US economy weigh on US dollar - Commerzbank
FXStreet (Córdoba) - The recent weakness of the US dollar is more than an overdue correction after the preceding strong gains, according to Lutz Karpowitz, analyst at Commerzbank, it is also a reflection of increasing concerns about the US economy. Should these intensify further, the USD would likely remain under pressure.
Key Quotes
“After steadily falling in past months, it seemed only a question of time before the EUR/USD rate, having reached 1.05, would move towards parity. The picture looks quite different now though, with EUR-USD trading above 1.13. We have been saying for some time that the downward momentum of EUR/USD was exaggerated and will not continue. And temporary corrections in a downward movement are not unusual”.
“However, the current upward movement in EUR/USD has nothing to do with temporary corrections. Firstly, it is too sharp for that, partly because of the still very one-sided positioning of speculative investors. Secondly, there are fundamental grounds too”.
“For a long time, real economic developments in the US were not an issue for the FX market. The US economy was simply running too smoothly and a continued upswing was taken for granted. Dollar highs and lows were generally triggered by price data – in line with the assumption that inflation is the final variable that still needs to improve in the Fed’s catalogue of targets. But then came the extremely weak first quarter, which was initially explained away by “special effects” (weather, strikes)”.
“The fact that the fundamental data have not improved much subsequently is causing concern though. Furthermore, the latest foreign trade data indicate that Q1 growth should be revised downwards. It is natural that in this situation every weak US figure is drawing attention. Should it become obvious that there will ultimately be no interest rate hike in 2015, the upward movement could continue much further yet”.
Key Quotes
“After steadily falling in past months, it seemed only a question of time before the EUR/USD rate, having reached 1.05, would move towards parity. The picture looks quite different now though, with EUR-USD trading above 1.13. We have been saying for some time that the downward momentum of EUR/USD was exaggerated and will not continue. And temporary corrections in a downward movement are not unusual”.
“However, the current upward movement in EUR/USD has nothing to do with temporary corrections. Firstly, it is too sharp for that, partly because of the still very one-sided positioning of speculative investors. Secondly, there are fundamental grounds too”.
“For a long time, real economic developments in the US were not an issue for the FX market. The US economy was simply running too smoothly and a continued upswing was taken for granted. Dollar highs and lows were generally triggered by price data – in line with the assumption that inflation is the final variable that still needs to improve in the Fed’s catalogue of targets. But then came the extremely weak first quarter, which was initially explained away by “special effects” (weather, strikes)”.
“The fact that the fundamental data have not improved much subsequently is causing concern though. Furthermore, the latest foreign trade data indicate that Q1 growth should be revised downwards. It is natural that in this situation every weak US figure is drawing attention. Should it become obvious that there will ultimately be no interest rate hike in 2015, the upward movement could continue much further yet”.