Fundamentally Bullish on the Dollar

Canaccord Genuity's Morning Coffee
"Credit Suisse's put out a note, "Dollar: a bottoming process", offering six reasons to be fundamentally bullish: 1) Valuation - the dollar is now very cheap (27% on a purchasing-power-parity basis against the British pound and 33% against the euro); 2) The U.S. current account deficit is improving sharply; 3) U.S. interest rate differentials against Europe/U.K. look set to narrow – especially in forward curves; 4) Growth differentials narrowing - relative to expectations, more scope for disappointment on EU/U.K. growth; 5) The US have already diversified into overseas assets; and 6) From here, it is emerging market currencies (RmB, OPEC, Real) that appreciate against the dollar not the European currencies. They add that speculators are still slight short (a contrarian indicator) and that dollar cycles tend to last seven years and that we are currently in the seventh year of the dollar bear market. They predict the U.S. dollar will be stronger against the euro and especially the pound in 6-12 months. A year out, they predict $1.85/pound and $1.45/euro." (5/12/08)

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