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14.02.2018 08:34 AM
US dollar: There is no reason for optimism

After the panic sales that ended on February 9, stock markets recovered partially, but further growth looks questionable. As it turned out, the markets have accumulated a significant negative potential, which does not allow to support growth, and at the heart of this potential are deep-seated problems of the American economy.

FRB San Francisco notes that the recovery since the fall of the economy in 2009 contradicts expectations. Usually, after the recession, the phase of rapid cyclical recovery comes, but this time everything is not so. The growth is rapidly slowing down, it is reflected in the slowdown of two factors, the slow growth of innovation and the reduction of participation in the workforce. These two unfavorable factors were created before 2008, and continue to operate now.

In other words, the real picture of American recovery does not correspond to economic models, it is much worse. Output per capita (the green line on the chart) fell sharply during the recession but is now well below the trend line, and the cyclically adjusted (blue line) trend has been stagnating for several years.

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In other words, despite the record growth in the stock indices, the Fed's victorious comments, which started the interest-rate growth process two years ago, there can be no question of any overheating of the US economy.

So, the explanation of the fall of the markets that has been actively promoted in recent days as related to the fears of "too rapid raising rates due to overheating" does not stand up to criticism, the reason was quite different. In fears that inflation will increase simultaneously with the cooling of already low rate of economic growth, which will lead to another recession.

Let's add that the collapse of the markets, which began on February 6, coincided with the report of Moody's, in which it warned that the US sovereign rating could be subjected to "negative pressure", that is, a decrease, due to the huge amount of public debt and fiscal irresponsibility. A likely decline in the rating will lead to a decrease in the reliability of US debt securities, which will automatically trigger a mechanism for moving capital, and this movement will not be in favor of the dollar.

According to Moody's, the US maintains its credit rating due to the benefits gained in the wake of the victory in World War II and the Cold War, but these advantages are not enough. President Trump officially announced his intention to revise the tariff policy with all major trading partners in favor of USA.

The threat of revising the status of the dollar in modern conditions is the main reason for the panic that hit the markets. This threat can not be eliminated in the current coordinates, which means that the long-term factor of pressure on the dollar does not decrease, but, on the contrary, increases.

The lull in the markets is temporary. Today a report on retail sales in January will be published and consumer prices, which may provide temporary support for the dollar, since inflation is likely to be weaker than forecasts.

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Judging by the dynamics of bond yields, inflation will remain at the levels of the previous month or slightly decline. In the short term, it will reduce the threat of a fourth rate hike in the current year and will serve as a basis for the recovery of markets. However, in the longer term, this factor will exhaust itself very quickly, the dollar will again undergo pressure, and the destruction of the markets may continue.

The growth of commodity currencies is unlikely in the current conditions, unconditional favorites are gold and the Japanese yen. The Swiss franc looks solid, yields on government bonds of Switzerland are growing faster than the market, which may indicate expectations of curtailing the policy of stimulation from the NBS.

Kuvat Raharjo,
الخبير التحليلي لدى شركة إنستافوركس
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