Shares 133 Views
Uncategorized

What’s behind the divergence between USD & nominal rate differentials? – Goldman Sachs

Goldman Sachs Economic Research explains the reason for the drop in the US dollar despite relatively stable nominal rate differentials.

Key quotes

Front-end market pricing for Fed hikes is roughly unchanged since the start of 2017, with about 125 bps priced through end-2019

Most hypotheses, like better global growth or a US inflation overshoot, don’t explain why nominal and real rate differentials are so stable, even as the currency has fallen

We believe the principal reason for the divergence is “Dollar down” rhetoric from the new administration, which we think highlights the constraints facing President Trump, rather than likely outcomes. After all, a policy mix that combines fiscal stimulus and protectionism is hard to reconcile with a weaker currency, even if that is what the new administration wants.

The last episode when USD diverged meaningfully below rate differentials began a year ago, when market fears over a large RMB devaluation were building. That episode lasted over six months, ending with the Nov. 8 election. The current episode should be shorter, with a good run for US data – our expectation – the tie breaker.

You may be interested

shares13 views

Opinion | What is a Security Token Offering (STO) and Why You Need an Advisor

Brian Evans - Oct 08, 2018

About the Author: Jaron Lukasiewicz is the CEO and founder of Influential Capital. Jaron has been an executive in the industry since 2012, previously serving as CEO of Coinsetter, one…

shares18 views

World Economic Forum: Blockchains improve Global Economy

Brian Evans - Oct 08, 2018

Beginning as a technology for financial ledgers only, blockchains have grown to become the corporate hype word around the globe. It’s touted as the invention that will…

shares24 views

‘Rehypothecation’: More about the Wall Street Practice that Could Ruin Bitcoin

Brian Evans - Oct 08, 2018

Note: This is part 4 in a multi-part article series exploring rehypothecation and commingling in bitcoin and other cryptocurrency markets. Part 1 and part 2 are interviews…

Most from this category

%d bloggers like this: