What do you make of the debate within
the Federal Reserve? I mean, you've got the big four banks in
the US predicting there's gonna be a recession somewhere in the third
quarter, probably. You've got officials which advise the
Fed Reserve also doing the same thing. And then you've only got to see nothing,
hear nothing, etc. I think that they're probably feeling
somewhat confident that the way that this fire of sorts in March and in the
banking system was put out for now. And with volatility coming down and as
we've just heard, that the data has been kind of strange within the system.
Yeah, that's still. Yeah, absolutely.
But I think that they feel that they can still push forward for now.
But I think that we we need to be careful with it because a couple of more
hikes and then the next thing as well, what's next?
So we can be facing a much bigger slowdown like what's happening in terms
of credit conditions. Are these going to be tightening very,
very abruptly? So the next senior loan officer survey,
I think, is going to matter a lot in terms of guiding also the Fed's view.
So let's not get too complacent that they can do a little bit more.
But at the end of the day, there's less fear of the Fed and less fear the Fed
means. I think it opens the door for the dollar
to keep softening through. Okay.
You know, you're on your own with his loss.
And I think you're talking about the dollar being in a chop phase.
Now, again, remind viewers what the chop phase is in IBEX sit in the chop phase
was one where we felt that the dollar had fallen a bit too far, too fast in
the latter part of 2022. So starting this year, we had a debate
the Fed, then there'll be some consolidation, this tug of war about
what they could be doing next. And as a result, then the dollar would
begin to stabilize. But that to us was always going to be
seen as temporary and then we'd move into the next phase of the dollar, which
would be the flop. And that is, as I said, it's less fear
of the Fed. You know, if the U.S.
economy is slowing, hopefully not too hard, not too fast, then there could be
some sigh of relief elsewhere and other currencies performed better.
So my risk of margin support the dollar. I mean, we have the dollar dollar bulls
having such a tough time, but we're beginning to see that recession forming.
In fact, the bond market is just debating whether it's going to be deep
or not. But they're quite convinced a recession
is coming. So, look, it's a really good question.
And I mean, it's pretty well telegraphed that the faster the U.S.
economy slows, historically, the dollar tended to do better.
But on the other hand, you know, some things have changed.
And what is that? First of all, it just comes down to what
we've seen even in the last few weeks, that when we had lots of risk aversion,
the dollar tried to rally, but it's struggled.
It was a very short lived rally against the backdrop of risk aversion.
The second thing is, is that the current level of the dollar on a very broad
basis, arguably is a hard landing level. And what I mean by that is if you look
back to the early 1980s, which is where this real effective exchange rate
measure sits for the dollar, you know, it's still a quite, as I said, an
overvalued type of position. So you might get this brief rally of the
dollar if we hit that type of hard landing risk aversion scenario.
But that's going to be very temporary. And the next thing the pendulum will
swing the other way and the dollar would go down pretty quickly.
The fact of the matter, we're not sure whether the banking turmoil is over.
And we always have that geopolitical risk.
Paul, I mean, we need to be wary about how low the dollar could go because
there's some kind of support from these two risks themselves.
There are, but on the other hand, what happens when you have risk aversion
coming through, it really should be the low yielding currencies that outperform.
And I don't think, again, we should lose sight of this.
You know, even going back to events in March, which currency was actually
beginning to trade quite well. That was the Japanese yen.
You know, it reminded us that it hasn't lost its safe haven appeal.
It didn't perform very well last year. But I think it's inherent
characteristics haven't changed from a long term perspective.
So we go down this runway, a very noisy, disruptive risk aversion later this
year. I think that currency will be in pole
position to outperform.
