According to analysts at HSBC, there are five key counter-arguments to the bearish-USD market perspective currently at work.
Key highlights
- Bearish USD argument 1 - Fed rates are near the peak and are already priced in.
Rates are currently moving closer towards neutral, but this is not the same as reaching peak rate, and it's unclear both when and how quickly other central banks will begin lifting their comparative interest rates.
- Bearish USD argument 2 - The US economy is set to slow, while Eurozone growth will pick up.
US growth estimates continue to be revised to the upside, rather than down, while Eurozone growth is currently failing to meet forecasts as it is; markets are assuming a Eurozone recovery, but no explanation is forthcoming for 2018's big miss, which is still running.
- Bearish USD argument 3 - Structural forces point to a weaker USD, overwhelming any cyclical support from higher interest rates.
The Eurozone is also exposed to its own structural weaknesses, with Italy's current tribulations highlighting the imbalances within the EU's own market system.
- Bearish USD argument 4 – Emerging markets FX is structurally sound and cheap, with USD weakness the flipside.
Emerging markets don't offer as much value as they are currently perceived to, with macro frailties still baked in with most demand remand within domestic markets.
- Bearish USD argument 5 - The USD has not rallied enough or at all given what should have been supportive developments – this shows it is already expensive.
The US Dollar continues to rally broad-base despite a lack of buildup in the Dollar index, and the Greenback could easily have plenty of more room to run.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds positive ground above 1.0750 ahead of Eurozone PMI, PPI data
EUR/USD trades in positive territory for the fourth consecutive day near 1.0765 during the early Monday. The softer US Dollar provides some support to the major pair. Traders await the HCOB Purchasing Managers’ Index (PMI) data from Germany and the Eurozone, along with the Eurozone PPI.
GBP/USD rises to near 1.2550 due to dovish sentiment surrounding Fed
GBP/USD continues its winning streak for the fourth consecutive day, trading around 1.2550 during the Asian trading hours on Monday. The appreciation of the pair could be attributed to the recalibrated expectations for the Fed's interest rate cuts in 2024 following the release of lower-than-expected US jobs data.
Gold price rebounds on downbeat NFP data, softer US Dollar
Gold price snaps the two-day losing streak during the Asian session on Monday. The weaker-than-expected US employment reports have boosted the odds of a September rate cut from the US Federal Reserve. This, in turn, has dragged the US Dollar lower and lifted the USD-denominated gold.
Bitcoin Cash could become a Cardano partnerchain as 66% of 11.3K voters say “Aye”
Bitcoin Cash is the current mania in the Cardano ecosystem following a proposal by the network’s executive inviting the public to vote on X, about a possible integration.
Week ahead: BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.