US: Weak Start to the Year Reinforcing USD Weakness - MUFG
Lee Hardman, Currency Analyst at MUFG, suggests that the US dollar
continues to remain on the defensive in the near-term undermined the
Fed’s dovish policy shift.
Key Quotes
“Fed
Vice Chair Dudley spoke late last week reiterating that the Fed should
be cautious and gradual when raising rates. He is concerned over
significant uncertainty about the outlook for growth overseas, low
inflation expectations and the Fed’s limited room to lower rates further
if required. He was less concerned by recent weakness in the US economy
stating that he has made no fundamental change in his outlook for the
US economy in recent months although he judges that risks for both
growth and inflation are titled slightly to the downside.
The
latest economic data releases are signalling that the US economy has
made another weak start to the year for the third consecutive year. The
Atlanta Fed’s model is estimating that economic growth will be close to
flat in Q1. In the previous years’ economic growth then rebounded
robustly in the following quarters. The leading ISM surveys are
signalling that economic growth is likely to rebound in Q2.
A
more subdued economic rebound would increase downside risks for the US
dollar and reinforce market scepticism over whether the Fed will raise
rates again this year. We are currently assuming that economic growth
will rebound solidly alongside building evidence of higher wages and
inflation which should allow the US dollar to regain a stronger footing
after the weak start to the year.”
(Market News Provided by FXstreet)
