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The US Dollar index was a little stronger on Thursday, rising against the Euro and the Pound in a mixed environment, as tech stocks continue to come under pressure. German CPI disappointed but didn’t have a major impact on the Euro. In the US Core PCE was on forecast, while in Canada GDP missed forecasts. ING hasn’t given up on 1.40 for EUR/USD in 2019 yet, while CitiBank FX is still bearish the Dollar, outlining their 3 best cases for why the greenback is still headed lower this year.
US Dollar to Pond, Euro Exchange Rates (USD/EUR, USD/GBP) Edge Higher
The US Dollar continued to creep higher on Thursday, posting gains against the British Pound and Euro in European trade, before losing a little ground as the day wore on. The Japanese Yen was firmer despite risk sentiment remaining fairly positive. There was some disappointing economic data out of Germany, as the CPI disappointed across the board, failing once again to hit forecasts. This now means that the most crucial economy in the Eurozone has posted back to back disappointments in inflation, justifying the dovish stance from ECB President Mario Draghi and indicating once again how stubborn inflation continues to be in the Euro area. Longer term this will probably keep a ceiling on rate expectations for the Euro and in turn subdue appetite for the common currency. In the US, core PCE data was released which indicated that price pressure picked up as expected in the US last month, but still remains very gradual. The Dollar received a slight boost but was only marginally higher without any fresh developments from the Trump White House. Top-tier data out of Canada was seen, but the disappointment in the GDP did not have much of an effect on the Loonie,
Citibank FX are still bearish the USD exchange rates
The Dollar faces a number of challenges, and the combination of these challenges have created a somewhat complicated explanation for why most large institutions believe that the greenback is headed lower over the coming months. Citibank’s Forex forecast still provides perhaps the best explanation of this view, breaking into 3 steps their base case for why the USD Index is going down over a 12-month view,
“There is no change to our medium-term bearish dollar view, mainly drive by:
- The US has already seen a sharp deterioration in the trend of the net international asset position and may now run the largest twin deficits in recent history.
- The fiscal boost may end with a relatively small/ temporary real output gain and higher inflation and/or trade deficits – neither being medium term $ positive.
- Tapered LSAPs in the EA and Japan mean less funding is likely to be forthcoming for larger US fiscal deficits as local duration shortages are slowly relieved.”
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