BofA's head of global rates and FX research spoke to Bloomberg earlier
- "Interest insensitive FX flows" have been weighing on the dollar in 2017
- First of such flows is cross-border equities flow
- 2017 saw massive foreign purchases of European equities and no interest in US equities
- Money now coming out of Europe to US equities
- Recent correction has helped with valuation as US equities are now less expensive
- Second flow is reserve diversification
- Investors have been heading to EM over the last year and central banks have been buying euro
- But EM is blowing up - Turkey, Argentina, India, Mexico are "blowing up"
- Now outflows from EM back to the dollar
- April numbers from Germany, France are not good either so it will discredit the bad weather story in Q1
- Believes that strong euro is biting into Eurozone growth and the weakness is likely to persist
- EUR/USD breaking below 1.2000 sees "every one running for the exit" in EM
- Higher dollar is a dangerous aspect for EM
- If trade negotiations blow up with China, it will be a problem for the dollar
- Although may be a problem for the dollar, it will be a bigger problem for EM
It's a rather long one but he gives a very refreshing take on the dollar's recent upside momentum, and he sees the reversal of cross-border equities flow as well as diversification flows as headwinds for the US dollar going forward.
He appears to be particularly bearish on EM and the euro at the current point in time too.
