Pacific Investment Management Company (PIMCo) analyst Joachim Fels with his view on the USD
Thinks that a further USD appreciation in coming months is more likely:
1. Unlike early 2017, when comments by President Trump and U.S. Treasury Secretary Steven Mnuchin sent the dollar on a path lower, the greenback doesn't look excessively strong right now
2. Growth rates
- the U.S. is likely to keep growing strongly due to fiscal stimulus
- China's economy has been slowing
- Eurozone growth, only tentative signs of stabilizing
3. Fed likely to remain undeterred by the president's verbal attack and keep raising its "appropriate policy path" dot plot
4. China looks likely to continue easing liquidity in an attempt to smooth the deleveraging process and support its economy and asset markets. This suggests further downward pressure on the yuan versus the dollar.
(On, five, I've included a bit more, although the full article is here at the link if you want an expansion on one to four also)
5. Trade tensions between the U.S. and other countries are likely to continue in the run-up to the November U.S. midterm elections, as polls suggest that President Trump's tough rhetoric is very popular with the Republican base. The threat of tariffs on an additional $200 billion of imports from China and the threat of a 25% tariff on all imported autos and parts are real and will likely lead to more volatility in financial markets in the coming weeks and months. Rising risk aversion typically supports U.S. assets relative to foreign assets, including the dollar against most currencies. (A notable exception is the yen.) Also, while there are no winners in a full-blown trade war (if it should come to pass), the U.S. stands to lose less than countries with large trade surpluses, which should also support the dollar.So while President Trump's re-entry into the cold currency war and his inclusion of the Fed on his list of targeted adversaries could possibly initiate a dollar downtrend, the strong countervailing trends suggest a more likely outcome is further appreciation of the greenback during the remainder of this year.
