FUNDAMENTAL ANALYSIS
rhetoric begins to become policy. At the same time, the ECB has only just committed to more QE until December 2017 and the Bank of Japan have recently changed to a new yield curve control Simply
policy. put,
there is now a new policy d iv e rg e nc e between
the
Fed and the rest of the world that should be very supportive of the Dollar.
Just as in August
2015
and again in January 2016, there comes a point when the Dollar becomes too
strong. Not
only does it impact global trade
growth, it
into quite a bit of detail and we haven’t even had a chance to talk about the impact a strong Dollar would have on commodity prices and therefore
FX
and financial markets, we are beginning to think it’s a race against time and possibly reality. A race against time in that if the Dollar becomes too strong before T r u m p ’ s reflationary policies have a chance to kick in, then a US and
global
Global central banks have coordinated policy in the last two years at an ultra-accommodative setting and this has prevented any major financial market disturbances
makes funding Dollar debt much more expensive. In fact, with the US economy now more intertwined with the global economy than ever before,
and some 40% of
S&P 500 corporate revenues coming from overseas economies, a too strong Dollar risks hurting the US at some point as well.
We realise that we have gone
the commodity producers particularly
in the Emerging
Markets. We will tackle some of these related issues another time.
As we sit here and think about the building divergence in central bank policies and the impact this will have on the Dollar and therefore the global economy
r e c es sio n becomes a signific ant risk later 2017. A race against reality in that although T r u m p ’ s p o l icies look to be o bv iou sly
any negative consequences.
reflationary, we are not at all convinced they will be delivered quickly or even have the desired effect without Just as
with the man himself, there are a lot of uncertainties when it comes to the details of his policy mix, and so we will have to take the evidence as it comes.
As well as a strong Dollar, there are other risks that could easily hit the headlines in 2017. China is struggling to maintain control of
FX TRADER MAGAZINE January - March 2017 37
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