Central banks are looking beyond the dollar to grow their foreign exchange reserves for the first time in a decade. Rising trade tensions, and a recovering European economy bode well for the euro making a stronger case for central banks to diversify into the monetary union’s currency. Approximately 64% of fx reserves are held in dollars, followed by euros at 20%, and the yen and pound sterling each commanding 4.5%. The...
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Summary: Interest rates and 10-year break-evens are rising. Some think the CRB Index is tracing out a head and shoulders bottom. We look for inflation in non-tradable goods’ prices (think services). Bond yields are rising. The break-even rates, which compare conventional yields to the inflation-linked securities are also rising. These developments, which we do not think can be attributed to central bank...
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Summary: Our bullish dollar outlook was based on divergence and we judge it to still be intact. The Dollar Index has been trading broadly sideways since March 2015, but never did more than a minimum retacement of its earlier rally. The Dollar index is at it highest level since March today. Our underlying constructive outlook for the US dollar remains intact. It is broadly based on the divergence between the...
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