Credit Suisse has turned bearish on the U.S. dollar versus the other
two G3 currencies for the first time since the greenback's scintillating
rally began in the middle of 2014.
The bank's currency team, led by Global Head of FX Strategy Shahab Jalinoos, sees EURUSD rising to 1.17 and USDJPY falling to 110 over the next three months.
Concerns about monetary policy impotence—that central bankers will be unable to successfully reflate their economies—are becoming embedded in currency valuations, according to the analysts.
There's "a growing fear that monetary policy is now 'pushing on a string,' at least from an FX perspective," they wrote. "EUR and JPY are materially stronger now than levels before ECB chief Draghi hinted at more easing and the BoJ introduction of negative rates in January."
Options traders doubt that the Bank of Japan in particular will be able to keep the yen on its back foot going forward—a development that would bode ill for its attempts to win a decades-long battle against deflation.
"Risk reversal skews are now generally bid for JPY again in the same manner as they were prior to the start of QQE in 2012–the risk of large JPY sell-offs linked to BoJ policy is gradually being priced out," wrote Jalinoos & Co.
Meanwhile, in part due to fears that monetary stimulus from the ECB and BoJ will fail to bear fruit, investors are skeptical of the Fed's ability to continue decoupling policy from that of other major central banks.
The bank's currency team, led by Global Head of FX Strategy Shahab Jalinoos, sees EURUSD rising to 1.17 and USDJPY falling to 110 over the next three months.
Concerns about monetary policy impotence—that central bankers will be unable to successfully reflate their economies—are becoming embedded in currency valuations, according to the analysts.
There's "a growing fear that monetary policy is now 'pushing on a string,' at least from an FX perspective," they wrote. "EUR and JPY are materially stronger now than levels before ECB chief Draghi hinted at more easing and the BoJ introduction of negative rates in January."
Options traders doubt that the Bank of Japan in particular will be able to keep the yen on its back foot going forward—a development that would bode ill for its attempts to win a decades-long battle against deflation.
"Risk reversal skews are now generally bid for JPY again in the same manner as they were prior to the start of QQE in 2012–the risk of large JPY sell-offs linked to BoJ policy is gradually being priced out," wrote Jalinoos & Co.
Meanwhile, in part due to fears that monetary stimulus from the ECB and BoJ will fail to bear fruit, investors are skeptical of the Fed's ability to continue decoupling policy from that of other major central banks.
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