After Wednesday’s surprisingly dovish turn by the Fed and the dramatic drop in U.S. interest rates resulting in a much weaker U.S. dollar, we started to re-think our U.S. dollar forecasts for the rest of the year. We were forecasting U.S. dollar weakness primarily starting in second half of the year, and we began to adjust our forecasts to reflect the Fed’s new dovish perspective. We appear to have been a bit premature on the demise of the U.S. dollar (DXY). Today’s dramatic drop in the EZ PMI, with particular weakness in manufacturing data, has caused EZ interests rates to crash and send the euro down sharply (see below). We have previously mentioned that exports have made a larger and larger share of EZ GDP over the past few years. With China slowing and many other countries faltering, demand for EZ exports is dropping and makes their economies vulnerable. Today’s data has rippled through all the markets with EZ equities weakening, commodity prices faltering, and U.S. interest rates down sharply with U.S. 10-year yields at their lowest point since January 2018. |
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