'USD Index needs wider yield spreads to break out above recent highs' - Hussein Sayed, FXTM

HUSSEIN AL-SAYED
PROFILE
• Current Job: Chief Market Strategist at ForexTime (FXTM)
• Career: Spent many years working in the finance sector as a dealer, trader and analyst in equities, credit and foreign exchange markets. As a highly experienced financial analyst with an in-depth understanding of the GCC region, Hussein provides valuable insight into the latest local and international market news and macroeconomic trends..

View profile at FXStreet

Hussein Sayed is the Chief Market Strategist for the Gulf and Middle East region at FXTM, and host of the popular evening business show on CNBC Arabia, Bursat Al Alam. As an ambassador for the FXTM brand, he represents the face and voice of FXTM within the MENA and GCC region, and is frequently quoted in leading media outlets such as Forbes Middle East, AFP, The Telegraph and MarketWatch. Through his role as business news anchor for CNBC Arabia, he covers the most important business and market news which provide insight to traders that could assist them in their investment decisions.

With Fed speakers talking up the March rate hike, how many interest rate hikes do you expect this year?

When looking at the overall economic conditions, the Fed is not only close to the dual mandate targets of price stability and full employment, but other data reflects optimism which suggests monetary policy should tighten to avoid overheated economy. Thus, I think the base scenario for 2017 is three rate hikes, along with the Fed projections with the first one to come on March 15,  unless Friday’s report is catastrophic, which is not likely to be the case. It will be interesting to see if the dots on the Fed’s dot plot start moving higher, indicating an additional rate hike to the current three, however, this might arise if fiscal stimulus plans and tax cuts occur by mid-year.

What's your outlook on the Dollar Index?

Divergence in monetary policy and aggressive expected U.S. fiscal plans have been the key factors which sent the Dollar’s index to a 14-year high back in January, suggesting that the majority of the good news has already been priced in the dollar. However, we’ve also seen improvement in economic conditions abroad, with inflation in the Eurozone hitting 2% in February, which could be translated into a possible shift in monetary direction from the ECB and other central banks. So rather than focusing on the U.S. alone, I will be watching spreads in the fixed income universe. For the Dollar’s Index to break above recent highs we need to have wider yield spreads between U.S. treasuries and government bonds elsewhere, otherwise any potential gain to the U.S. dollar is likely to be limited.

Is the next fall on the GBPUSD just a matter of time? Or did the Pound hit lows for good on the October flash crash?

The pound has been treading water for a couple of weeks against its majors. While this price action indicates that GBP might have already reached its bottom, it’s still a matter of how Brexit negotiations plays out that’s going to move the currency forward. I still believe that GBPUSD will fall below 1.20 if the EU took a hard stance in the negotiations, and recent economic data shows softer service and manufacturing activities will speed up the declines. Another risk for the pound is going to play out if Scotland decides to go for a second independence referendum. Overall, I see the risks are still to the downside and any move higher will be seen as an opportunity to short GBP.

Do you follow Bitcoin action? Has the rally of the digital currency a similar behavior than the Gold one (safe haven)?

The bitcoin has experienced such big moves recently, gaining more than 60% since it plunged at the beginning of the year. What’s even more interesting, the Bitcoin is currently trading higher than Gold prices and reached a peak of $1,298 on Friday. I can’t really consider the bitcoin as a safe haven yet due its volatility and short history, but there’s no doubt it’s becoming a serious alternative investment to consider in a portfolio. Much of the moves recently were supported by tighter currency restrictions in emerging economies, and if this remains the case in addition to political instability, we may see even further gains in the bitcoin.