Dollar shorts?
EUR/USD 1.0667; DXY 99.522 down .109
From ZeroHedge:EUR/USD 1.0667; DXY 99.522 down .109
Worst Economic Impact Still To Come, Fed's Fischer Warns As Dollar Soars To 12-Year Highs
The Trade-Weighted US Dollar has risen almost 19% over the past 18 months - the fastest pace of increase on record - and is now at its highest level since 2003. As we noted previously, this is not unequivocally good for American corporate profits... and if you believe The Fed's Stan Fischer - the worst effects of this soaring exchange rate are yet to come... Most of the impact of exchange rate moves come after that first year. So we’re only just getting into the business end of the impact of the dollar’s strength on the US economy. And the Fed are about to hike?
As BlondeMoney's Helen Thomas noted recently, take the recent speech from Stan Fischer on ‘The Transmission of Exchange Rate Changes to Output and Inflation‘.
For a 10% appreciation in the US dollar:
‘The staff’s model indicates that the direct effects on GDP through net exports are large, with GDP falling over 1-1/2 percent below baseline after three years. Moreover, the effects materialize quite gradually, with over half of the adverse effects on GDP occurring at a horizon of more than a year.’
Here’s the impact on net exports:
Doesn’t look good, does it? Most of the impact comes after that first year. So we’re only just getting into the business end of the impact of the dollar’s strength on the US economy. And the Fed are about to hike?
Check out his conclusion:
“To wrap up, while the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well, notwithstanding their large effects on certain sectors of the economy heavily exposed to international trade. Monetary policy has played a key role in achieving these outcomes through deferring liftoff relative to what was expected a little over a year ago”
So his argument now is that they’ve been dovish enough because they have already postponed their first hike, even as now it’s just around the corner. This is insane monetary policy. They’ll tell you about the easing after it’s happened!!
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So who gets hurt the most?
As Deutsche Bank details,
A stronger dollar, the reset in oil prices to significantly lower levels and slower global growth and investment spending vs. last cycle will challenge many of the S&P’s commodity and industrial capital goods producers for a long time. We’ve been under-weight Energy, Materials and Industrials since last year on these reasons and expect these sectors to underperform in 2015, 2016 and perhaps longer. Unless lower stock prices offer a more attractive entry point....
