Will the Dollar Gain Momentum After QE2 Ends?
2011-05-09
Many analysts agree that the US dollar will gain significant positive momentum when the Federal Reserve ends its Treasury purchase program in June. Economists note, however, that it is harder to predict how long the dollar can sustain this support.
Westpac has held short positions on the dollar against riskier currencies for some time, locking in some profits on the dollar index last week. Bank analysts point out that yields on US Treasury bonds remain at extremely low levels, pressuring the dollar negatively.
Experts believe market anxiety over the end of QE2 will be intense. They argue this event will support the dollar only if accompanied by strong US economic data.
Mark Faber, publisher of the Gloom, Boom & Doom Report, is convinced US monetary authorities will launch a third round of quantitative easing. He forecasts trillion-dollar US budget deficits over the next 10 years, which cannot be fully financed by bond issuance alone. The Fed must partially monetize government debt via QE to keep interest rates low.
UBS, RBC: China Posts High Trade Surplus
2011-05-10
China’s trade balance surplus rose from $139 million in March to $11.4 billion in April, far exceeding economists’ $1.0 billion forecast. UBS Securities economists expect China’s 2011 export surplus over imports to total $140-$150 billion, with monthly surpluses continuing.
Royal Bank of Canada analysts predict stronger US pressure on China to appreciate the yuan. However, the growing surplus may convince Chinese authorities that the economy can handle faster yuan appreciation to curb inflation. They forecast the yuan reaching 6.40 per dollar by mid-year and 6.20 by end-2011 against the US currency.
Barclays Capital: Greece’s Future Uncertain
2011-05-10
Barclays Capital analysts note the euro under pressure from uncertainty over how European authorities will help Greece resolve its debt problems. EU leaders discussed the issue over the weekend but issued no official statements.
Standard & Poor’s cut Greece’s credit rating from BB- to B on May 9, the fourth downgrade since April 2010. Greek debt credit default swaps hit a record 1,369, implying a 69% default probability over five years.
Markets now discuss Greek debt restructuring as plausible. ECB Governing Council member Ewald Nowotny said Greece may not access markets independently next year.
JPMorgan: Yen to Gradually Strengthen vs Dollar
2011-05-11
JPMorgan analysts predict the Japanese yen could reach this year’s high against the US dollar, as Japanese investors repatriate funds to reduce risk after the March 11 earthquake.
They estimate $123.5 billion in repatriated assets. This contrasts with global demand for high-yield assets. Japan’s large current account surplus adds upward pressure on the yen, unlikely to turn to deficit despite trade surplus shrinkage from the disaster.
The dollar’s weakness also favors the yen. JPMorgan sees USD/JPY stabilizing only if US rates rise much higher than Japan’s, not expected until late 2012. They forecast 78 yen per dollar by end-March 2012, with Japan unlikely to intervene absent high volatility.
Daiwa: China Economy Not Overheated
2011-05-11
Daiwa Capital Markets analysts argue that despite high inflation in China, the economy is not yet overheated, so aggressive monetary tightening is unnecessary.
China’s consumer price index rose 5.3% in April year-on-year, down from 5.4% in March.
However, persistent high inflation makes policy easing unlikely in Q2 or Q3. Daiwa warns that without a softer approach by Q3, China’s growth could slow sharply in Q4 2011.
HSBC: Yuan to Become Reserve Currency in 5-7 Years
2011-05-12
HSBC analysts predict the Chinese yuan will become a global reserve currency in 5-7 years, driven by demand rather than policy, achieving near-full convertibility.
They expect slower yuan appreciation ahead, shifting focus to internationalization. In 3-5 years, rapid Chinese growth will make the yuan one of the top three trade currencies. Central banks should diversify reserves, reducing dollar share and increasing yuan holdings.
John Taylor: High-Yield Assets at Peaks
2011-05-13
John Taylor, head of the world’s largest currency hedge fund FX Concepts LLC, says the rally in high-yield assets since early 2009 is ending, with eurozone debt issues returning to focus.
Bloomberg surveys show waning optimism on US and global economies, with commodity demand likely to fall over six months. Stocks, euro, and emerging market currencies have peaked or will by end-July.
The S&P 500 doubled from March 2009 but lost 1.1% since May 2 amid US growth slowdown. EUR/USD hit a 6-week low of $1.4123, down 4% from $1.4940 on May 4.
Taylor bets on euro decline to dollar parity. FX Concepts sees Greek default risk high, with 2-year bond yields at 26.77% and widening spreads to German bonds signaling imminent crisis.
BNY Mellon: EU Must Act on Greece
2011-05-13
BNY Mellon currency strategists say Greece and eurozone uncertainty cannot persist. EU leaders met Friday but made no aid announcements.
French Finance Minister Christine Lagarde favors aid, but Finnish opposition resists bailouts. Consensus is hard; more aid won’t fix fundamentals and could prompt demands from Portugal and Ireland.
Debt restructuring offers little help. EU authorities must present a plan soon, as uncertainty drives up Greece’s borrowing costs. BNY Mellon bets on euro decline, with EUR/USD potentially returning to $1.30 levels from early 2011.
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“excerpt”: “Key forex insights from May 9-13, 2011: Dollar post-QE2 outlook, China’s trade surplus, Greece debt risks, yen strength, yuan reserve potential, and euro pressures.”,
“short_description”: “Discover major forex events from May 9-13, 2011: QE2 end effects on USD, China’s surplus boost, Greece downgrade risks, yen repatriation, and eurozone debt warnings.”,
“faq_html”: “
FAQ
What was QE2 and its impact on the dollar?
QE2 was the Federal Reserve’s second quantitative easing round ending in June 2011, expected to boost the USD if paired with strong economic data, though low Treasury yields pressured it.
Why did analysts predict yen strength in 2011?
Post-earthquake repatriation of $123
