HSBC (Hong Kong Shanghai Bank Corp) has begun to seek publicity for a research report arguing that the US dollar has peaked. I’ve seen mention of it both in the FT and on Bloomberg (the link above).
HSBC is generally pretty good at economics, and has been ahead of the curve on major moves like this before. So I think its argument is worth considering. It also fits in with the way I’ve been thinking over the past few weeks.
The HSBC argument:
–the EU is starting to show economic strength as the US is beginning to slow a bit
–on purchasing power measures, the US$ is more overvalued than everything except the Swiss franc
–the Fed is reaching the end of its tolerance for dollar strength
–sentiment is universally bullish for the dollar (i.e., where are new buyers going to come from?)
–the dollar typically weakens after the first Fed Funds rate hike.
Risks to the view are mainly geopolitical:
–Greece exits the euro
–emerging markets crisis
–perceived failure of Abenomics
–US legislation forcing American companies to repatriate foreign cash holdings.
I don;t know David Bloom, HSBC’s chief currency strategist and the report’s author, personally. But I see his work as another piece of evidence that the pro-dollar consensus is beginning to crack and that at least a mild reversal of form is likely sooner rather than later.