9 Jun 2015
USD: Cautious on any strength in the near-term – BTMU
FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, comments on the G7 leaders summit and their view on FX, and further warns to observe some caution ahead on any USD strength in the near-term, although the longer term bullish view on the dollar remains still.
Key Quotes
“The reversal of US dollar strength was at least initially triggered by comments from a French government official quoted by Reuters as stating that President Obama had told G7 leaders that the strong US dollar is a problem. The comments have since been denied both directly by President Obama and by a statement from the White House.”
“President Obama stated that he didn’t say the US dollar was too strong, and that he doesn’t comment on daily currency fluctuations. The statement from the White House added further clarity stating that “he made the point that he has made previously a number of times: that global demand is too weak and that G7 countries need to use all policy instruments, including fiscal policy as well as structural reforms and monetary policy, to promote growth”.”
“Still, market participants may remain more wary that the US is becoming more concerned about US dollar strength despite the official denials which could undermine the US dollar’s performance in the near-term.”
“However, with the Fed likely to begin raising rates later this year well ahead of other major central banks given the outperformance of the US economy it is likely that US dollar strength will persist and likely become even more acute.”
“The G7’s leaders’ declaration also contained no mention of US dollar strength. G7 leaders reaffirmed their existing exchange rate commitment to market determined exchange rates. Excessive volatility and disorderly movements in exchange rates are viewed as having adverse implications for economic and financial stability.”
“We remain comfortable with our view that the relative economic fundamentals still remain supportive for the US dollar. The US economy is regaining upward momentum and the Fed is moving closer to raising rates which should prove supportive for the US dollar. The US dollar does not in our view look too expensive based on relative fundamentals. Still we must respect the recent unfavourable price action which suggests some caution about expecting further US dollar strength in the near-term. The US dollar index remains within a consolidation phase for now.“
Key Quotes
“The reversal of US dollar strength was at least initially triggered by comments from a French government official quoted by Reuters as stating that President Obama had told G7 leaders that the strong US dollar is a problem. The comments have since been denied both directly by President Obama and by a statement from the White House.”
“President Obama stated that he didn’t say the US dollar was too strong, and that he doesn’t comment on daily currency fluctuations. The statement from the White House added further clarity stating that “he made the point that he has made previously a number of times: that global demand is too weak and that G7 countries need to use all policy instruments, including fiscal policy as well as structural reforms and monetary policy, to promote growth”.”
“Still, market participants may remain more wary that the US is becoming more concerned about US dollar strength despite the official denials which could undermine the US dollar’s performance in the near-term.”
“However, with the Fed likely to begin raising rates later this year well ahead of other major central banks given the outperformance of the US economy it is likely that US dollar strength will persist and likely become even more acute.”
“The G7’s leaders’ declaration also contained no mention of US dollar strength. G7 leaders reaffirmed their existing exchange rate commitment to market determined exchange rates. Excessive volatility and disorderly movements in exchange rates are viewed as having adverse implications for economic and financial stability.”
“We remain comfortable with our view that the relative economic fundamentals still remain supportive for the US dollar. The US economy is regaining upward momentum and the Fed is moving closer to raising rates which should prove supportive for the US dollar. The US dollar does not in our view look too expensive based on relative fundamentals. Still we must respect the recent unfavourable price action which suggests some caution about expecting further US dollar strength in the near-term. The US dollar index remains within a consolidation phase for now.“