Why the USD is able to diverge from interest rate differentials? - Nomura

Sandeep Kanihama FXStreet Contributor

The dollar has continued to weaken as dollar crosses were egged lower by comments from Treasury Secretary Mnuchin that a weak dollar is positive for US trade, but structural forces remain very much in play, in view of analysts at Nomura.

Key Quotes

“There has been a noteworthy breakdown between the FX and rates relationship in recent months .We think there are five factors that explain the divergence: (1) USD has already rallied too much for a Fed hiking cycle; (2) starting a tightening phase matters more than mid-way hikes; (3) the US trade deficit is a problem; (4) Euro is winning the capital flow battle; and (5) CNY policy.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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