HSCB: USD rally is coming to an end by Milan Cutkovic

In their latest FX weekly report, HSBC analysts reaffirm their view that the USD rally is running out of steam.

In contrast to the bulk of the market, which now appears determined to envision ever-greater strength for the USD, we believe the USD rally is nearing its end. Having become a vocal bull back in 2013 we now see multiple signs that this rally is nearing exhaustion. There may be a ‘last hurrah’ for USD bulls, but in our view this is the beginning of the end for the USD rally.

Our case rests on a slew of arguments as described in ‘USD bull run: the beginning of the end’, 19 March. The key pillars of our view are as follows:

  • US tolerance for USD strength has its limits

  • Valuations

  • Positioning

  • USD typically weakens once the Fed actually starts to tighten

  • Data developments

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