Goldman Sachs Economic Research explains the reason for the drop in the US dollar despite relatively stable nominal rate differentials.
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
Insurance Giant Allianz Is Testing a Token to Move Money InternallyBrian Evans - Apr 19, 2018
Allianz is testing a blockchain token to move money between its global affiliates.
SEC Subpoenas Riot Blockchain Over Cryptocurrency PlansBrian Evans - Apr 19, 2018
Various worrisome trends involving blockchain technology exist as of right now. One of the more popular solutions for struggling firms is to announce blockchain or cryptocurrency plans.…
Social Snafu: Twitter Verifies a Scam Verge Cryptocurrency AccountBrian Evans - Apr 19, 2018
The official Verge account, meanwhile, has yet to get its blue badge. A fraudulent Twitter account is making the rounds in the cryptocurrency market, with anonymous cryptocurrency Verge…