US: Forces required to make the US dollar great again are falling by the wayside - ING

Viraj Patel, Research Analyst at ING, points out that earlier this summer, they stated that the Trump administration's effect on currency markets going forward is set to be 'MEGA: Making Everyone (Else) Great Again' and while a playful take on the President's 'MAGA' catchphrase, there is little doubt that global markets have been dominated by the theme of broad USD weakness in recent months.

Key Quotes

“Crucially, however, we expect this backdrop to remain in place and if anything, pick up greater traction given that those forces required to make the dollar great again are quickly falling by the wayside. Of late, it has been more of a Fed story – with the negative economic effects of Hurricane Harvey (and now Irma), North Korea-related geopolitical tensions and what remain lacklustre US inflation dynamics seeing odds of another rate hike this year tumble.”

“Indeed, we may require a mighty turnaround in US data over the coming months to convince the FOMC to raise rates in December; this is becoming increasingly unlikely and judging by more muted comments from Dudley overnight, it seems that Fed officials are also losing faith. Add to this ongoing US political uncertainty – where the temporary debt ceiling extension has merely kicked the can down the road into early 2018 – and we fear that markets could still shift to the idea that any “pause” in the Fed’s tightening cycle will be fairly lengthy (if not permanent). A negative US CPI surprise next week could well be final nail in the coffin for a Dec Fed rate hike. Ahead of this, expect ‘risk-off, dollar-off’ to be the theme, with North Korea’s Foundation Day tomorrow potentially seeing another highly-publicised ICBM launch.”