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8 May 2015
Currency wars on a stronger dollar - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank explained that there is plenty of evidence within Q1 corportate earnings reports that indicate that the strong USD impacted the sales of many large US companies and the EUR weakness provided a windfall for companies based in the Eurozone.
Key Quotes:
"This trend has also extended into official economic data. The US has produced a spate of poor readings this year while the Eurozone is showing encouraging signs of reflating."
"In the past couple of weeks, Eurozone-US interest rate spreads and the value of EUR/USD have moved accordingly."
"The recent squeeze higher in EUR/USD has no doubt been exaggerated by the weight of market positioning. During the first quarter of 2015 investors were both extremely long USDs and heavily short EUR. Now that market expectations that the Fed could start to hike interest rates as soon as the middle of this year lie in tatters, the USD looks unlikely to recover the momentum the characterised its bull run at the start of this year. That said, it is still likely that the Federal Reserve will still be tightening policy at a time when both the ECB and the BoJ are following aggressive easing policies. It has been our view for some time that the Fed will not start to tighten policy until December this year and this is still consistent with a move lower in EUR/USD in the coming months, albeit at a moderated pace."
"The recent sell off in the USD will not be welcomed by many other central banks."
"The stronger USD has been a major catalyst in the war against low growth and weak inflationary pressures being waged in various part of the world and has allowed several central banks to benefit from a loosing of monetary conditions via the exchange rate."
"If the USD sell off persists, there is risk that several central banks around the world will reassert their dovish positions in order to ensure that relative interest rate differentials remain clearly in favour of the greenback."
Key Quotes:
"This trend has also extended into official economic data. The US has produced a spate of poor readings this year while the Eurozone is showing encouraging signs of reflating."
"In the past couple of weeks, Eurozone-US interest rate spreads and the value of EUR/USD have moved accordingly."
"The recent squeeze higher in EUR/USD has no doubt been exaggerated by the weight of market positioning. During the first quarter of 2015 investors were both extremely long USDs and heavily short EUR. Now that market expectations that the Fed could start to hike interest rates as soon as the middle of this year lie in tatters, the USD looks unlikely to recover the momentum the characterised its bull run at the start of this year. That said, it is still likely that the Federal Reserve will still be tightening policy at a time when both the ECB and the BoJ are following aggressive easing policies. It has been our view for some time that the Fed will not start to tighten policy until December this year and this is still consistent with a move lower in EUR/USD in the coming months, albeit at a moderated pace."
"The recent sell off in the USD will not be welcomed by many other central banks."
"The stronger USD has been a major catalyst in the war against low growth and weak inflationary pressures being waged in various part of the world and has allowed several central banks to benefit from a loosing of monetary conditions via the exchange rate."
"If the USD sell off persists, there is risk that several central banks around the world will reassert their dovish positions in order to ensure that relative interest rate differentials remain clearly in favour of the greenback."