I haven’t seen a better summary in six bullet points of what’s happened in the market this year than Deutsche Bank today. They highlight what has kept the dollar strong this year.
- The
dollar has outperformed this year on a very big widening in US – global
growth differentials and high real rates. - It is
not just fiscal policy that is driving this, Fed tightening pass-through
into the economy is much weaker than elsewhere. - Eventually
there will be a (mild) recession and Fed easing but when? Risks are Fed
cuts come after others and dollar stays stronger for longer too. - EM
central banks are already cutting. Antipodean economies most likely to cut
first in G10, followed by some European economies. We are still debating
the Fed – ECB gap. - When
the BoJ decides to hike it will have to go fast. This implies an inverted
v-shape in yen…
