3 Nov 2015
USD performance when the Fed tightens – Deutsche Bank
FXStreet (Delhi) – Alan Ruskin, Macro strategist at Deutsche Bank, notes that while the USD has not traded particularly well in a number of Fed tightening cycles, in the two big USD cycles of the early 1980s and late 1990s the USD did surge ahead.
Key Quotes
“A unique aspect of this big USD cycle, is that even a truncated Fed tightening cycle will contrast with other major Fed cycles where a majority of G10 Central Banks were either tightening with the Fed (like 1994), and/or their bond markets were attractive relative to the US (like 2004-6).”
“USD gains have been more front-loaded before this (eventual) Fed tightening than any past pre-Fed tightening period. This would suggest smaller and slower gains ahead, with 10% USD TWI gains spread over the next couple of years.”
“However, the USD did underperform in the 1994 and 2004 Fed tightening cycles, while the yen’s propensity to strengthen during Fed tightening cycles is another noteworthy feature.”
Key Quotes
“A unique aspect of this big USD cycle, is that even a truncated Fed tightening cycle will contrast with other major Fed cycles where a majority of G10 Central Banks were either tightening with the Fed (like 1994), and/or their bond markets were attractive relative to the US (like 2004-6).”
“USD gains have been more front-loaded before this (eventual) Fed tightening than any past pre-Fed tightening period. This would suggest smaller and slower gains ahead, with 10% USD TWI gains spread over the next couple of years.”
“However, the USD did underperform in the 1994 and 2004 Fed tightening cycles, while the yen’s propensity to strengthen during Fed tightening cycles is another noteworthy feature.”