3 May 2016
USD: More dovish Fed policy continues to weigh heavily – MUFG
Lee Hardman, Currency Analyst at MUFG, notes that the US dollar has continued to weaken in the Asian trading session following the signal last week from the Fed that it is still in no hurry to begin resuming rate hikes at their next policy meeting in June.
Key Quotes
“Confirmation that the US economy made a weak start to the year combined with modest wage growth has provided further momentum for the weaker US dollar trend in the near-term.
Comments yesterday from San Francisco Fed President Williams have added to the dovish sentiment as well stating that the new normal for interest rates might be 3.00% which is lower than the Fed dot plot consensus for the Fed funds rate in the longer run. He reiterated that the Fed takes spill-overs from the rest of the world into account.
The latest IMM report revealed that speculators are continuing to build short US dollar positions in the near-term. In the current environment it is hard to see the US dollar weakening trend reversing until the Fed signals that is more confident about resuming rates hikes.
Our short-term valuation models are already signalling that the US dollar weakness appears to be overshooting although it could still extend further. Broad-based US dollar weakness is reinforcing the problem of a stronger yen for Japanese policymakers. It prompted BoJ Governor Kuroda to state yesterday that “there is a risk that the yen’s current appreciation brings an unwelcome impact on the economy” and Prime Minister Abe stated that “rapid moves” are “undesirable”.”
Key Quotes
“Confirmation that the US economy made a weak start to the year combined with modest wage growth has provided further momentum for the weaker US dollar trend in the near-term.
Comments yesterday from San Francisco Fed President Williams have added to the dovish sentiment as well stating that the new normal for interest rates might be 3.00% which is lower than the Fed dot plot consensus for the Fed funds rate in the longer run. He reiterated that the Fed takes spill-overs from the rest of the world into account.
The latest IMM report revealed that speculators are continuing to build short US dollar positions in the near-term. In the current environment it is hard to see the US dollar weakening trend reversing until the Fed signals that is more confident about resuming rates hikes.
Our short-term valuation models are already signalling that the US dollar weakness appears to be overshooting although it could still extend further. Broad-based US dollar weakness is reinforcing the problem of a stronger yen for Japanese policymakers. It prompted BoJ Governor Kuroda to state yesterday that “there is a risk that the yen’s current appreciation brings an unwelcome impact on the economy” and Prime Minister Abe stated that “rapid moves” are “undesirable”.”