USD: Mixed fortunes – Wells Fargo

The dollar has exhibited softness through most of 2017 thus far as hard data continues to lag much of the sentiment driven data, indicating that the gap between future expectations and the current economic situation may be difficult to close, explains the analysis team at Wells Fargo.

Key Quotes

“However, year over year, the U.S. dollar has appreciated against the majority of its major trading partners. Against the British pound and the Chinese renminbi, the dollar has gained 12.3 percent and 5.5 percent, respectively.”

“The Federal Reserve raised the target range for the fed funds rate by 25 bps at the June meeting as widely expected. Comments regarding balance sheet normalization beginning sometime this year were also supportive of the dollar. Overall, our currency strategy team sees enough in the FOMC’s announcement to generate some corrective strength in the U.S. dollar over the next several months, as the Fed is likely to remain more active during other global central banks during this period.”

“Some key central banks have begun to hint at a less dovish global monetary policy stance – most notably the European Central Bank at its policy announcement from early June, while we also note more hawkish comments from the Bank of Canada’s policymakers recently.”

“Global monetary policy may be shifting from “divergence” to a period of monetary policy “convergence.” If this is to be the case, we may also be nearing, or even beginning, a transition from trend U.S. dollar strength to trend U.S. dollar weakness.”