Tuesday was another strong day for the USD. Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes Greenback’s outlook.
USD strength and no end in sight?
It seems to me that the necessary condition for EUR/USD weakness is for the majority of the market to take a more optimistic economic view of the US rather than Europe. That means the reason for the USD strength therefore is the prospect of a special ‘soft landing’ of the US economy. Is this prospect realistic? It is not impossible. And for that reason, I do not want to claim that the USD strength necessarily rests on clay feet. However, a soft landing is not a fait accompli either.
It seems to me that the FX market has become too convinced of a ‘soft landing’ for the US economy. If we do see that, a little further USD strength might be justified, but probably not much more. If we don’t see it though, a strong correction of USD strength would then be justified. For that reason, I still feel more comfortable in the camp of skeptics, who are not so confident about the recent USD strength.
I am well aware of the fact that my skepticism may turn out to be inappropriate if the soft landing of the US economy does materialize but have the impression that the skeptic camp is not sufficiently populated.
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