31 Dec 2015
Dollar should continue to appreciate as Fed goes it alone – Deutsche Bank
FXStreet (Delhi) - Research Team at Deutsche Bank, suggests that with US monetary policy diverges from that of its major trading partners in 2016, the dollar should continue to appreciate.
Key Quotes
“As a result, we expect net exports to continue to drag meaningfully on economic activity. At the same time, the strong dollar will weigh further on import prices, likely suppressing consumer goods inflation through 2017. These projections are corroborated by simulations of the Federal Reserve Board’s FRB/US macroeconomic model. Therefore, we have cut our 2016 real GDP growth forecast (Q4/Q4) to 2.2% from 2.7%.”
“Additionally, we have lowered our 2016 core PCE inflation forecast (Q4/Q4) by two-tenths to 1.7%. For 2017, our growth and core PCE inflation forecasts are similarly modest at 1.9% and 2.1%, respectively. Moreover, the effect of the appreciating dollar on growth and inflation should serve as a headwind to rate hikes. For this reason we expect only a cumulative 100 basis points (bps) of interest rate increases through yearend 2016, and 200 bps of hikes through 2017. These forecasts are slightly more conservative than the FOMC’s most recent median projections, which call for policy rate increases of 125 bps and 250 bps through 2016 and 2017, respectively.”
Key Quotes
“As a result, we expect net exports to continue to drag meaningfully on economic activity. At the same time, the strong dollar will weigh further on import prices, likely suppressing consumer goods inflation through 2017. These projections are corroborated by simulations of the Federal Reserve Board’s FRB/US macroeconomic model. Therefore, we have cut our 2016 real GDP growth forecast (Q4/Q4) to 2.2% from 2.7%.”
“Additionally, we have lowered our 2016 core PCE inflation forecast (Q4/Q4) by two-tenths to 1.7%. For 2017, our growth and core PCE inflation forecasts are similarly modest at 1.9% and 2.1%, respectively. Moreover, the effect of the appreciating dollar on growth and inflation should serve as a headwind to rate hikes. For this reason we expect only a cumulative 100 basis points (bps) of interest rate increases through yearend 2016, and 200 bps of hikes through 2017. These forecasts are slightly more conservative than the FOMC’s most recent median projections, which call for policy rate increases of 125 bps and 250 bps through 2016 and 2017, respectively.”