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17 May 2013
Flash: USD gains to be far bigger in H2 – Societe Generale
FXstreet.com (Barcelona) - Following recent surge in USD posting a fresh 20-month high yesterday at 84.09, “A pause may be due,” says Head of Rates and FX Strategy at Societe Generale, Vincent Chaigneau, “but recent moves confirm the shape of things to come: dollar gains will be far bigger in H2, as the Fed exit debate heats up,” he adds.
In this recent run higher, “The main driver has been the improvement in US data, starting with the NFP report on 3 May,” Vincent expands, adding: “The Fed seems to have concluded that the low yields offered a good opportunity to test the market, through the press. The WSJ’s article from Hilsenrath 1 on the Fed mapping exit from QE3 received a lot of attention indeed. It refocused minds away from the dovish interpretation of the FOMC statement, where the Fed said it could do more or less QE.”
But he warns: “Let’s not get carried away. It is too early to position for an aggressive change of tone from the Fed. In our view, the Fed has just checked the market and seen that managing a smooth exit won’t be easy. It doesn’t mean they won’t exit, but there is no hurry: inflation has been very subdued, and Q2 still is going to be a relatively weak quarter for growth,” the analyst suggests.
“Still, the market will be eagerly waiting for the 18-19 June FOMC, and that should keep the dollar supported,” he concludes.
In this recent run higher, “The main driver has been the improvement in US data, starting with the NFP report on 3 May,” Vincent expands, adding: “The Fed seems to have concluded that the low yields offered a good opportunity to test the market, through the press. The WSJ’s article from Hilsenrath 1 on the Fed mapping exit from QE3 received a lot of attention indeed. It refocused minds away from the dovish interpretation of the FOMC statement, where the Fed said it could do more or less QE.”
But he warns: “Let’s not get carried away. It is too early to position for an aggressive change of tone from the Fed. In our view, the Fed has just checked the market and seen that managing a smooth exit won’t be easy. It doesn’t mean they won’t exit, but there is no hurry: inflation has been very subdued, and Q2 still is going to be a relatively weak quarter for growth,” the analyst suggests.
“Still, the market will be eagerly waiting for the 18-19 June FOMC, and that should keep the dollar supported,” he concludes.