Archive

USD Bears Broke The Bandwagon

• Investors ask whether threats to the USD’s reserve currency status are resting or dead, whereas we wonder if it was ever alive. Commentators routinely overextend narratives.
• The USD share of allocated FX reserves is already trending downward. A potential acceleration from smaller deficits and higher tariffs would partly offset the impact.
• Fuller hedging of USD asset holdings abroad may have already reached its limit. We still see more attractive mispricing elsewhere, such as excessively dovish rate curves.

By Philip Rush

HEM: Dovish Prices Deranged

• Activity remains surprisingly strong, defying dovish fears
• Labour markets are tight, and manufacturing is stable
• Underlying price and wage inflation is still too high
• Rates underrepresent the rebounding risk sentiment
• BoE cut pricing ahead of the Fed looks the most deranged

EA: April’s Awkward Core Rebound

• Resurgent services offset falling energy prices in April to deliver a surprisingly stable 2.2% rate, breaking the usual correlation between energy price moves and surprises.
• Surprises skewed positively across the Euro area, compounding the underlying signal from core inflation, which has reversed its weakness from the previous two months.
• The headline news is modest, and the composition won’t derail the ECB’s June cut, but it demonstrates the ongoing inflation problem that should truncate the easing cycle.

By Philip Rush

EA: GDP Stimulated Faster Than Supply

• Activity growth in Q1 shouldn’t be dismissed as it helps signal the economy’s momentum and effective monetary conditions that trade shocks will fall on top of in the euro area.
• GDP growth exceeded expectations again by increasing to 0.35% q-o-q. Productivity’s poor post-pandemic performance helps GDP drive the ongoing fall in unemployment.
• Supply’s trend seems to have softened despite demand’s improving, raising excesses and the risk that ECB monetary policy was already stimulative before the trade shock.

By Philip Rush