Friday, August 07, 2015

What if everyone's wrong about the dollar?

One of the biggest stories in global markets continues to be the epic rise of the US dollar against the world's big currencies.

With the Federal Reserve on the verge of tightening monetary policy with higher interest rates, many economists think the dollar has room to go higher.
"Optimism on the dollar is widespread, and our house view is for further dollar strength," Credit Suisse's Andrew Garthwaite said in a new note to clients. He noted that a recent Credit Suisse survey found that 70% of investor clients expected the dollar to continue appreciating over the next 12 months.
But what if the consensus is wrong?
In his note — titled "Where could the consensus be wrong?" — Garthwaite identifies reasons the dollar's rally may be near its end.
Among other things, he found that history is not on the consensus' side.
"The dollar has historically fallen after the first Fed rate hike; indeed, the first rate hike on the last five tightening cycles was associated with a dollar weakening by around 10% over the following three months," he said.
cotd dollar ratesCredit Suisse
Indeed, we can't rule out the possibility that all of the dollar's recent strength is actually the market already pricing in rate hikes.

No comments:

Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.