© Yujiro Goto
|
I believe that US GDP for the first quarter has mostly fallen with a relative impact. Hence, we do not expect this latest weaker-than-expected figure to have a big implication on further monetary policy making process of the Federal Reserve. Actually, monthly data, like Consumer Confidence and ISM PMI Indexes, or the recent Non-Farm payroll, clearly suggest that economic movement is much stronger. We anticipate that growth rate in the second quarter will be much higher than the previous estimate. I believe that economic growth rate in Q2 and in the second half of this year will most probably approach 3% of the annual rate. Thus, we do not consider the latest Q1 GDP as an important figure for our financial market, or our forecast for the further greenback direction. Consequently, the recent improvement in the US economy (Non-Farm Payroll and ISM PMI figures) clearly point to a higher US growth, which is going to support the USD.
According to the economists, current situation in the US economy is compared to a car coming out of a pit stop (reacceleration) – state and local governments are starting to spend again, removing a drag on the economy. At the same time, the steady hiring should buoy household spending and a stronger global growth should bolster exports. Will these factors, indeed, strengthen the US economy in the foreseeable future or are they more of a logical outcome from the previous actions and conditions?
At the moment, the economy could be a bit stronger going forward. However, probably the most important rates that we witness now is hiring with a solid improvement creation, which should eventually support household consumption. Also, the housing market has been a bit weaker, but the latest data from pending home sales came out slightly stronger. Thus, housing market will also be supportive for the US economic recovery going forward.
What will be the main drivers for the greenback throughout the Q3 and 2014?
I believe that gradual recovery in the US economic data is supportive for the Dollar in Q3 and Q4. However, on top of the economic improvement, major changes in the Federal Reserve policy stands will be significant for the ongoing strength in the greenback. As it is known, we are going to have Yellen's testimony this month, Jackson Hole meeting in August, and two more FOMC meetings during the third quarter. There may be a chance for the Fed to show less dovish stance, as market keeps improving and the economic situation looks a bit better compared to what we had three-six months ago. Hence, if the Fed suggests a clear potential exit strategy later this year – it can be supportive for the greenback in the Q3 and Q4.
What are your forecasts for the USD/JPY, the EUR/USD and the GBP/USD for the end of the Q3 and 2014?
We expect the USD/JPY to trade at 108 level in the Q3 and 112 for the end of this year. For the EUR/JPY we anticipate 1.32 for the end of the third quarter, and 1.30 by the end of 2014. Finally, we forecast the GBP/USD pair to reach 1.67 in the Q3 and with no change by the end of the year.