Dollar downtrend to continue? - Nomura
|Analysts at Nomura explained that a supposedly quiet recess for US politicians has been anything but that.
Key Quotes:
"The departures of nationalist members of President Trump’s team, Steve Bannon and Sebastian Gorka, appear not to have curtailed the President’s public statements. Meanwhile, the “globalists” such as Gary Cohn, Steve Mnuchin and Rex Tillerson have publically stated their discomfort with some of the President’s actions."
"This may reduce their ability to influence the President. Then there are the increasingly hostile relationships between the President and Congressional leaders, Paul Ryan and Mitch McConnell."
"Congress returns next week with a full docket that includes dealing with Hurricane Harvey, raising the debt ceiling, averting a government shutdown, and tax reform. While the market is pricing a benign period (T-bill yields around the shutdown dates are reversing their spike), the risks are skewed the other way."
"The political instability stands in contrast with the euro area, where French President Macron and Chancellor Merkel appear to be forging a new alliance to integrate the euro area further. Though difficult to quantify, this political risk premium could justify the dollar generally trading weaker than rate differentials would suggest."
Dollar downtrend to continue
"Our bias, therefore, would be for continued dollar weakness. We had earlier shifted the focus from the euro to the yen as the preferred vehicle to express this view, but a more balanced approach would make more sense now given the unpredictability of upcoming event risks. So we would look for general dollar weakness against both the euro and yen."
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