USD - Little Reason For Bearishness Yet
There seems little reason to be bearish on the greenback right now, particularly as markets continue to hawkisly reprice the policy outlook, and with the Fed’s March ‘dot plot’ again likely to point to just 75bp of cuts this year, around 15bp more than markets currently price, which should continue to see Treasuries sell-off, naturally led by the front-end of the curve (in turn posing a headwind for the JPY, which remains a proxy rates trade).
It is now just the policy outlook that remains supportive for the greenback, however, with the ‘buy dollars, wear diamonds’ view having plenty of other building blocks underpinning it.
These include, the continued ‘goldilocks’ economic backdrop, comprised of immaculate, if bumpy, disinflation, with most measures well on their way back to 2% (particularly if one annualises MoM data), in addition to continued economic resilience, with the labour market remaining tight, and spending relatively resilient, all putting the US on course for a ‘soft landing’. Of course, this is not only an impressive backdrop in its own right, but particularly so when compared to the well-documented struggles being seen in other DMs.
As if that wasn’t enough reason to be bullish on the buck in the medium-term, one must also consider the other side of the ‘dollar smile’, with lingering haven demand as a result of simmering geopolitical risk in Ukraine, the Middle East, and elsewhere, also likely to provide support. November’s election, though probably not yet a tradeable theme, is also worth keeping on the radar, particularly with a Trump win, and subsequent tariff impositions, likely to be another bullish catalyst.
Lastly, one must consider the equity space, with major Wall Street indices continuing to print record highs on an almost daily basis, with the latest leg of the risk rally spurred on by last week’s blowout NVDA earnings print.
While said risk rally has spread elsewhere – Japan’s Nikkei 225, and the pan-European Stoxx 600 have also both printed fresh records – it is a move that continues to be driven, by and large, by chipmakers, and the broader tech sector. Hence, the US market should continue to outperform global peers, likely sparking significant further inflows as a result, and providing the final jigsaw piece to further support the bull case for the buck.
It is now just the policy outlook that remains supportive for the greenback, however, with the ‘buy dollars, wear diamonds’ view having plenty of other building blocks underpinning it.
These include, the continued ‘goldilocks’ economic backdrop, comprised of immaculate, if bumpy, disinflation, with most measures well on their way back to 2% (particularly if one annualises MoM data), in addition to continued economic resilience, with the labour market remaining tight, and spending relatively resilient, all putting the US on course for a ‘soft landing’. Of course, this is not only an impressive backdrop in its own right, but particularly so when compared to the well-documented struggles being seen in other DMs.
As if that wasn’t enough reason to be bullish on the buck in the medium-term, one must also consider the other side of the ‘dollar smile’, with lingering haven demand as a result of simmering geopolitical risk in Ukraine, the Middle East, and elsewhere, also likely to provide support. November’s election, though probably not yet a tradeable theme, is also worth keeping on the radar, particularly with a Trump win, and subsequent tariff impositions, likely to be another bullish catalyst.
Lastly, one must consider the equity space, with major Wall Street indices continuing to print record highs on an almost daily basis, with the latest leg of the risk rally spurred on by last week’s blowout NVDA earnings print.
While said risk rally has spread elsewhere – Japan’s Nikkei 225, and the pan-European Stoxx 600 have also both printed fresh records – it is a move that continues to be driven, by and large, by chipmakers, and the broader tech sector. Hence, the US market should continue to outperform global peers, likely sparking significant further inflows as a result, and providing the final jigsaw piece to further support the bull case for the buck.
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