Weak Dollar: Blame Shifting Expectations on Monetary Policy & Protectionist Trump Administration
The brevity of the recent correction to US equities suggests that US monetary conditions remain supportive for risk-taking.
Foreign holdings of US Treasury securities remain significant, although official holdings have fallen in importance since 2011.
Foreign influence in US equities is far lower compared to Treasury securities, but overseas buyers have grown significantly in importance for US corporate bonds.
Changing policy expectations for overseas central banks have been major reasons for the dollar’s weakness during the past year, contrary to prevailing wisdom.
US bond investors remain sceptical that the Fed will be able to raise the federal funds rate in line with forward guidance, while expectations about ECB policy have become significantly more hawkish, despite President Draghi’s dovish rhetoric.
The Trump Administration is winning the Great Currency War due to its ability to wield a protectionist stick, as well as its willingness to take bond market risks with easier fiscal policy.
DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the intention of delivering independent global macro investment insights and new thematic long-term ideas to investors, along with an agnostic opinion of the markets.
Said DeSaque has over 29 years of experience working as a professional economist in financial services, primarily based in London. His working role has involved extensive travel around the world, bringing him into contact with investors of different cultural backgrounds and investment requirements. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist and Investment Strategist at US banks Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he became Head of the London Economics Department in 1996. This role allowed him to engage with senior investment professionals, alongside regulators and provided a unique perspective of market intelligence at work.
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