USD: Longer term cycle peak approaching? - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital Pty Ltd, suggests that they have sympathies with the view that the USD may be approaching a medium-term peak in the next year or two. 

Key Quotes

“We note a Bloomberg news report on Deutchebank FX strategists (Ruskin and Saravelos) calling for deep falls in the USD in 2019 and 2020 to EUR 1.30 and 1.40, and JPY 108 and 100.  Bloomberg quoted the duo calling for “a big USD cycle inflection point” in H1-2019 as the US rate cycle matures, the EUR rate hiking cycle begins and China growth recovers.”

“And they note that the fiscal induced above-trend growth will dissipate by 2020 when the USA fiscal accounts will be “in their most precarious state” since WWII.  They write that “This is the worst of all worlds for the USD – a sharp reversal towards easing rates, occurring as the larger external deficit poses a more evident funding problem.”

“Such long-range forecasts are subject to extreme uncertainty.  We are not prepared to make a call when the USD will reach a medium-term peak.  The US economic recovery is not showing any real signs of stalling.  But we agree that risks are building for the USD.”

“Once the market appears to see the US rate cycle at its peak, it may indeed turn its attention to the wide US twin deficits, a lack of any plan to rein in a growing fiscal deficit, and the prospect of a deeply partisan Congress that may prove far less capable of dealing with the challenges of an economic downturn.”