SIMON SMITH
PROFILE:
• Current Job: Chief Economist for FxPro
• Career: Holds an MSc. in Economics from the University of London and a BSc. from Brunel University. He has held economic and strategy positions with Standard & Poor’s.
View profile at FXStreet
Simon Smith has over seventeen years experience of macro forecasting and investment strategy research. Prior to joining FxPro in May 2010, Simon was a consultant with Thomson Reuters, having spent four years as Chief Economist at Weavering Capital.
Simon has held economic and strategy positions with Standard & Poor’s, together with consultancy firms 4Cast and MMS International. He holds an MSc. in Economics from the University of London and a BSc. from Brunel University.
No. It’s not about the labour market and near-term rate hike expectations have been priced out of the curve so it would take a number way-off expectations to have a notable impact on the dollar this month. It’s also worth noting that the dollar’s correlation with interest rate expectations (2 year bond yield) has been falling over recent weeks and it currently at the lowest level since the middle of 2014. This is because whilst rate hike expectations been scaled back, the dollar has received some safe haven demand on the back of events global financial markets and China in particular.Has the GBPUSD found a bottom, or will the fundamental risks (mainly the Brexit referendum) continue to encourage the bears?
The interesting thing about the dollar in January was how the weakness was pretty independent of other factors going on, which suggest that overseas investors were either lightening on sterling asset or (more likely) increasing hedge ratios ahead of the Brexit vote, which looks more and more likely to come later this year. The UK’s current account deficit means that it has been building up liabilities with overseas investors over recent years, so it’s their actions that are going to be most influential on the currency. It’s not that are taking a particular position on the outcome, more reaction to the uncertainty that the referendum creates. I could easily see GBPUSD down to the 1.35 level by the end of April, especially if the vote comes as early as June.The USDJPY is back in bullish mode after the BoJ decision to go negative on the interest rates. Is the JPY safe-haven appeal undermined by this move?
I don’t think it is. This move was pretty tame, certainly compared to the measures announced 3 years when the BoJ went large on QE. By a slim majority, they voted to pay negative rates on a certain portion of excess reserves banks hold with the Bank of Japan. Hardly a big bazooka. What it did do was trip up the currency markets, which perhaps was their implicit hope, and if so it was relatively successful. But central banks struggle to stand in the way of underlying structural forces being exerted on a currency and that remains just as true for the BoJ and the yen as for most other central banks. The current account has been turning more positive for Japan over the past year and the yen usually follows that with a lag of 12-18 months. Put this against the backdrop of central banks struggling to make their expansionary policies effective, then it’s less likely that we are going to see a return to a positive risk environment. As such, structural and safe haven forces look likely to re-assert themselves on the Japanese currency in the coming month.Are we in a currency war between world's main central bankers? For how long are these easing policies sustainable?
I’ve probably said it before, but I think the phrase ‘currency wars’ one of the more over-used and mis-used in finance. I think often the currency reaction is a by-product of the policy reaction. For sure, sometimes central bankers are looking squarely at the currency when they undertake certain actions, but as with the BoJ, they cannot stand in the way of the structural forces pulling the currency either up or down. Whilst inflation continues to undershoot expectations, then central bankers are going to keep the easy policy mantra.Do you think 30$/barrel is a correct price for oil in the current oversupply market situation? Will this be sustainable until next OPEC meeting, scheduled for June?
If there is one thing harder to forecast than exchange rates, it’s the price of oil. So it’s impossible to say if USD 30/barrel is correct or not in my humble opinion. What I can say is that I think low oil prices are set to remain a feature of 2016. The dynamics of the oil market have changed dramatically over the past 5 years. The notion of the Middle East exporting oil to an energy dependent West is being undermined by greater energy efficiency, less dependency and technological improvements that mean an increase in proven reserves. But making these viable with the oil price down at these levels is naturally a big hurdle. At some point, supply will be constrained by the loss of output from shale producers. US oil production peaked in April last year, but output is still up 35% over the past 3 years and the correction (4% lower from peak) has been small in relation to this relentless rise.
General Risk Warning for stocks, cryptocurrencies, ETP, FX & CFD Trading. Investment assets are leveraged products. Trading related to foreign exchange, commodities, financial indices, stocks, ETP, cryptocurrencies, and other underlying variables carry a high level of risk and can result in the loss of all of your investment. As such, variable investments may not be appropriate for all investors. You should not invest money that you cannot afford to lose. Before deciding to trade, you should become aware of all the risks associated with trading, and seek advice from an independent and suitably licensed financial advisor. Under no circumstances shall Witbrew LLC and associates have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to investment trading or (b) any direct, indirect, special, consequential or incidental damages whatsoever.
Recommended Content
Editors’ Picks
EUR/USD drops below 1.0800 after German Retail Sales data
EUR/USD has come under fresh selling pressure and trades below 1.0800 after the data from Germany showed that Retail Sales declined by 1.9% MoM in February. Resurgent US Dollar demand is adding to the downside in the pair. US data are next in focus.
GBP/USD stays weak near 1.2600 amid market caution
GBP/USD remains defensive near 1.2600 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull.
Gold price bulls keenly await US PCE Price Index on Friday before placing fresh bets
Gold price (XAU/USD) continues with its struggle to make it through the $2,200 mark on Thursday and oscillates in a narrow trading band through the early part of the European session.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.