Why the USD is able to diverge from interest rate differentials? - Nomura
|The dollar has continued to weaken as dollar crosses were egged lower by comments from Treasury Secretary Mnuchin that a weak dollar is positive for US trade, but structural forces remain very much in play, in view of analysts at Nomura.
Key Quotes
“There has been a noteworthy breakdown between the FX and rates relationship in recent months .We think there are five factors that explain the divergence: (1) USD has already rallied too much for a Fed hiking cycle; (2) starting a tightening phase matters more than mid-way hikes; (3) the US trade deficit is a problem; (4) Euro is winning the capital flow battle; and (5) CNY policy.”
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