The consensus in financial markets is still that the dollar will appreciate as monetary policy is becoming more restrictive in the United States than in other regions (euro zone, Japan, China, etc.), but in reality, analysts at Natixis now have to question whether the dollar could depreciate markedly instead.

Key Quotes

“There are no longer any capital outflows from China, particularly because the rise in renminbi interest rates is encouraging Chinese investors to no longer look for investments in dollars.”

“Euro-zone growth is stronger than what was expected (and probably stronger than US growth), the euro zone could regain full employment by end-2018, and we should then expect the ECB to exit quantitative easing in 2018, which will shore up the euro against the dollar.”

“There is a risk of a cyclical slowdown in the United States, due to the decline in corporate profitability and the low capacity utilisation. It is therefore possible that the normalisation of the Federal Reserve’s monetary policy will be limited, and that there will be a downward correction in the US equity market, which would drive capital from the United States.”