Back
24 Dec 2014
A year-end Greenback rally is in sight - UBS
FXStreet (Córdoba) - The UBS analyst team noted that stronger-than-expected US GDP figures, underpinned by strong consumption, will likely trigger a greenback rally toward the year-end, as financial markets upgrade their expectations about Fed rate hikes.
Key Quotes
“Just as all is growing quiet before the holiday season, the US data calendar brought another round of impressive releases, lifting the Greenback to new highs for the year. US growth for the third quarter was revised up to a substantial 5%, the highest quarterly rate since 2003, largely driven by consumption”.
“The US Federal Reserve is looking closely at the consumer sector when gauging the recovery of the US economy. Therefore, strong consumption should propel USD strength as financial markets upgrade their expectations about Fed rate hikes”.
“And the positive trend in consumption is likely to continue. With gasoline prices falling quickly and longer-term borrowing rates still quite attractive, US consumers are likely to keep up their spending in the fourth quarter. The final reading of the University of Michigan (UoM) consumer sentiment index confirmed this trend. Sentiment was revised down only slightly for November from the highest reading since 2007. Expectations within the UoM survey moved up sharply”.
“Two-year US government bond yields jumped immediately after the release to the highest level since 2011, leaving their European counterparts way behind. German Bunds were for once unmoved by US data, which led to an even wider spread between US and European benchmark yields”.
“This constellation promises a strong year-end rally for the Greenback. Trading volumes are typically light, so moves can be large. Europe simply doesn't have anything similar to offer in terms of economic data”.
Key Quotes
“Just as all is growing quiet before the holiday season, the US data calendar brought another round of impressive releases, lifting the Greenback to new highs for the year. US growth for the third quarter was revised up to a substantial 5%, the highest quarterly rate since 2003, largely driven by consumption”.
“The US Federal Reserve is looking closely at the consumer sector when gauging the recovery of the US economy. Therefore, strong consumption should propel USD strength as financial markets upgrade their expectations about Fed rate hikes”.
“And the positive trend in consumption is likely to continue. With gasoline prices falling quickly and longer-term borrowing rates still quite attractive, US consumers are likely to keep up their spending in the fourth quarter. The final reading of the University of Michigan (UoM) consumer sentiment index confirmed this trend. Sentiment was revised down only slightly for November from the highest reading since 2007. Expectations within the UoM survey moved up sharply”.
“Two-year US government bond yields jumped immediately after the release to the highest level since 2011, leaving their European counterparts way behind. German Bunds were for once unmoved by US data, which led to an even wider spread between US and European benchmark yields”.
“This constellation promises a strong year-end rally for the Greenback. Trading volumes are typically light, so moves can be large. Europe simply doesn't have anything similar to offer in terms of economic data”.