G10 FX Weekly
Group Economics Macro & Financial Markets Research
Dollar sell-off
Georgette Boele, +31 20 6297789 Roy Teo +65 6597 8616
1 May 2015 • • •
Dollar aggressively sold off because of weak cyclical forces and a change in investor sentiment The Swedish krona outperformed on less aggressive monetary policy stimulus Our new forecasts reflect the recent dollar weakness, which we expect to be temporary
Dollar sells off…
markets also seem to have become less concerned about
Last week, we expressed our view that stronger-than-expected
Greece. The anti-risk aversion trade explains why safe haven
US data and a less dovish Fed could be triggers to restart the
assets such as gold and the yen have barely profited from the
US dollar rally. However, the opposite has happened. Indeed,
weakness in the US dollar.
the dollar was the worst performing major currency this week losing between 1-4%. What has gone wrong?
The Swedish krona outperforms G10 FX The Swedish krona has outperformed other major currencies
…because weak cyclical forces weigh on the dollar…
this week, because the Riksbank eased monetary policy less
US GDP for the first quarter was dreadful and this triggered
aggressively than had been anticipated by financial markets.
significant dollar weakness. The US Federal Reserve sounded
The Riksbank increased government bond purchases, but left
neutral, but financial markets are confident that it will not hike
the repo rate unchanged at -0.25%. Financial markets had
interest rates while the economy is weak. As a result, financial
expected a cut to -0.35%. Going forward, we expect further
markets have further priced out rate hikes this year and next
monetary policy easing to push up inflation and to avoid an
year. They expect the Fed funds rate to be at 0.34% at the end
appreciation in the Swedish krona.
of 2015 and at 1% at the end of 2016. This is far below the Fed’s own projections and our expectations. As these cyclical
Forecast adjustments
forces weigh heavily on the dollar, it is not a surprise that
We have made some adjustments in near-term forecasts to
EUR/USD moved above 1.10 again. Going forward, we expect
reflect the recent wave of US dollar weakness. However, we
a strong rebound in US economic growth which will seal the
remain confident in our calls : 1) a strong US economy, 2) Fed
case for a start of the rate hike cycle in September 2015.
starting the hiking cycle in September, 3) Fed funds to reach 0.75% at the end of 2015 and 2.25% at the end of 2016 4) The
Dollar out of favour
Bank of Japan to ease monetary policy in July to support the
performance in %, with USD as basis
economy and to bring inflation closer to its target 5) Election uncertainty to weigh on sterling in the coming months. Our
4
adjustments are highlighted in the table below. We have also 3
brought our EUR/USD forecasts for 2016 more in line with our bond yield forecasts.
2
ABN AMRO major currency forecasts
1
30-Apr 1.1090 118.60 131.54 1.5410 0.7197 0.9409 1.0435 0.7979 0.7600 1.2034 9.2770 8.3664
Q2 2015 1.05 122 128 1.44 0.73 1.00 1.05 0.75 0.73 1.25 9.50 8.25
Q3 2015 1.00 125 125 1.39 0.72 1.05 1.05 0.73 0.69 1.29 9.50 8.25
Q4 2015 0.95 128 122 1.40 0.68 1.11 1.05 0.72 0.68 1.30 9.50 8.00
…while risk aversion trades are being unwound
EUR/USD USD/JPY EUR/JPY GBP/USD EUR/GBP USD/CHF EUR/CHF AUD/USD NZD/USD USD/CAD EUR/SEK EUR/NOK
In addition, investor sentiment in financial markets has
Source: ABN AMRO Group Economics
0 -1 NOK
SEK
AUD
EUR
GBP
CHF
CAD
NZD
JPY
Source: Bloomberg
improved dramatically. This was reflected by investors moving out of eurozone and US government bond markets. The euro profited strongly from these developments because financial
Q1 2016 1.00 130 130 1.47 0.68 1.05 1.05 0.7 0.66 1.31 9.50 8.00
Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.68 0.65 1.33 9.50 7.75
Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.67 0.64 1.34 9.50 7.50
Q4 2016 1.10 135 149 1.45 0.76 1.00 1.10 0.66 0.64 1.35 9.50 7.50
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G10 FX Weekly - Dollar sell-off
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