TD Securities outlines its strategic view on the US dollar's path, recommending that the recent gains in the euro, pound, loonie and Swiss franc against the US dollar should fade due to the divergence in inflation and growth expectations between the US and G10 countries.
the main points:
- Short-Term Outlook: In the coming weeks, short-term factors such as positioning and historical fair value (HFFV) point to a possible downward trend for the USD.
- Medium-term US dollar upside: Over the next three to six months, TD expects the US dollar to strengthen as the inflation divergence between the US and the G10 becomes more pronounced, although global growth is starting to show signs of converging.
- Growth and Inflation Dynamics: While global growth revisions show converging, US inflation remains significantly higher compared to the G10, suggesting less likelihood of concurrent monetary policy easing.
- Currency Strategy: TD advises strategic positions in the stronger US dollar through the fading of recent gains in the euro, British pound, Canadian dollar and Swiss franc, which they view as temporary and out of sync with broader economic indicators.
Conclusion:
TD analysis supports a bullish outlook for the US dollar in the medium term based on persistent inflation differentials and recommends taking advantage of recent counter-trend moves in other major currencies.
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This article was written by Adam Paton at www.forexlive.com.
