Why is the US dollar so weak? For most of 2014 our forecast was that the US dollar would average US$1.29 against the euro; we held our nerve while it stayed well below that but last month gave in and revised our expectation to US$1.34. That is still above where it is now, but we think that an appreciation is imminent, as strong US growth in the second quarter will bring the prospect of US interest rate rises closer into view just as the European Central Bank loosens policy.
Predicting immediate currency movements can be difficult, as market sentiment and unexpected short-term capital flows need to be balanced against fundamental economic drivers. In the case of the eurozone, slumping imports as consumers tightened their belts in the southern periphery, Germany's big trade surplus and Spain breaking its dependence on foreign credit led to a large current-account surplusfor the eurozone. This, in turn, supported the value of the euro and outweighed the US's stronger economy and tapering of quantitative easing.
What's your pick for currencies which should be moving up or down over the next six months? I'd like to buy some PNG kina (you'll know why from my newsletter at the beginning of May), and I've still got my short on the Aussie dollar going. Let me know on Twitter @Baptist_Simon or via email on simonjbaptist@eiu.com.
Predicting immediate currency movements can be difficult, as market sentiment and unexpected short-term capital flows need to be balanced against fundamental economic drivers. In the case of the eurozone, slumping imports as consumers tightened their belts in the southern periphery, Germany's big trade surplus and Spain breaking its dependence on foreign credit led to a large current-account surplusfor the eurozone. This, in turn, supported the value of the euro and outweighed the US's stronger economy and tapering of quantitative easing.
What's your pick for currencies which should be moving up or down over the next six months? I'd like to buy some PNG kina (you'll know why from my newsletter at the beginning of May), and I've still got my short on the Aussie dollar going. Let me know on Twitter @Baptist_Simon or via email on simonjbaptist@eiu.com.
Best regards,
Simon Baptist
Chief Economist and Asia Regional Director
Simon Baptist
Chief Economist and Asia Regional Director
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