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USD rally unlike any other - HSBC

FXStreet (Guatemala) - A report by David Bloom, Global Head of FX Strategy & team explained that the current USD rally is unlike any we have seen before.

Key Quotes:

“We are only at the early stages of a USD bull run. We believe this will ensure it is not only the strongest currency in 2014, but also in 2015".

"Even though we have long been advocates of a strong USD, we have substantially revised many of our forecasts to reflect this expected USD supremacy”.

“The USD rally so far has only been roughly 5% yet history shows a 20% rise would not be implausible”.

“A stronger USD would help deliver a dose of much needed inflation to those nations facing excessively low inflation. While the scale of a USD rally required to bring inflation all the way back to target in the likes of the Eurozone would likely be unpalatable to US policymakers, USD strength will still help stave off the deflation threat”.

“The USD on its own may not be able to save the world but it will certainly buy these economies time

True, expectations of US monetary tightening in response to an accelerating US economy have played their conventional part. But unusually, much of this USD strength is the mirror of effort elsewhere to weaken currencies, not in a bid to stimulate growth through exports, but to stave off deflation and prevent inflation expectations from becoming de-anchored”.

“Reviving exports is a secondary objective at best. This is a currency war where stealing inflation rather than growth is the goal”.

“Therefore, unlike previous USD rallies, this one will not be tripped up by US current account deficit concerns”.

“The new feature is whether the US economy can generate sufficient inflation internally to tolerate the deflationary impact of a stronger USD”.

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