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8 Jul 2013
Flash: Fundamentals continue to be in favor of USD – BBH
FXstreet.com (New York) - According to the BBH Global Currency Strategy Team, “Fundamental and technical considerations are aligned in favor of the US dollar.”
In particular, the latest string of economic data, including the June employment report, is strengthening the market's conviction that the Federal Reserve will begin tapering its long-term asset purchases later this year and raise the Fed funds target by the end of next year.
At the same time, the other major central banks are moving in the opposite direction. The Bank of England issued a mild protest to the rise in UK rates. The ECB more explicitly pre-committed to low rates for an extended period. The Bank of Japan is only a few months into its QE, and while deflation is indeed being arrested, the 2% inflation target is remains a long distance off. Ultimately, “the incentives for unwinding the structural short-dollar trade remains intact.” the team adds.
In particular, the latest string of economic data, including the June employment report, is strengthening the market's conviction that the Federal Reserve will begin tapering its long-term asset purchases later this year and raise the Fed funds target by the end of next year.
At the same time, the other major central banks are moving in the opposite direction. The Bank of England issued a mild protest to the rise in UK rates. The ECB more explicitly pre-committed to low rates for an extended period. The Bank of Japan is only a few months into its QE, and while deflation is indeed being arrested, the 2% inflation target is remains a long distance off. Ultimately, “the incentives for unwinding the structural short-dollar trade remains intact.” the team adds.