USD strength declining – Deutsche Bank

In view of Taisuke Tanaka, Strategist at Deutsche Bank, the recent upturn in majors against the USD are attributable to improved conditions in the respective economies and declining USD strength as expectations for Trump administration policy's reflationary impact recede.

Key Quotes

“EUR, GBP, and CAD rebounded against USD last week following hawkish remarks by heads of the ECB, the BoE, and the BoC. We have revised our end-2017 EUR/USD forecast from 1.02 to 1.16.”

“However, we expect the US economy to sustain growth of over 2.5% owing to deregulation and a modest impact from fiscal policy. We see the Fed continuing to exit super-easy monetary policy, even in a low-inflation environment. At the same time, we look for central banks in the eurozone, UK and Canada to weaken their hawkish stances if their currencies appreciate, long-term interest rates rise, and asset prices soften. We thus think any upward shifts in range levels resulting from rebounds for EUR, GBP, and CAD should not be emphasized as a major trend.”

“Some major central banks' readiness to exit super-easy monetary policy as major economies outside the US firm does not contradict our bearish yen outlook. Relatively strong easing-bias of the BoJ also will be one of factors to reinforce the yen-bearish color. We maintain our base view for USD/JPY to rise to over 115 if US economic growth is 2.5% (main scenario), to hold at close to or over 110 if growth is 2% (secondary scenario), and to soften to 105 or below if growth is 1.5% (risk scenario). In the near term, there could be potential appeal in shorting the yen against the following cross currencies: EUR, GBP, CAD, and AUD.”