US data and likely delays to fiscal stimulus plans from the Trump administration
Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, argues that the soft US data and likely delays to fiscal stimulus plans from the Trump administration has led to a rethink of Fed tightening expectations.
“While a June hike is still largely priced in, markets no longer view another hike as likely in H2. This has hurt the dollar’s appeal against the major and EM currencies.”
“The other big positive factor for EM FX this past quarter has been higher commodity prices. Here, the outlook remains very volatile as markets struggle with the possibility of persistent excess global supply in a number of industrial commodities.
For now, however, commodity prices have been fairly resilient.”
“Whatever the pace and scope of Fed tightening is, we still believe it is very important for investors to continue focusing on the fundamentals and also on hedging out currency risk whenever feasible.
Individual country risk must be monitored closely. We believe investors are being too sanguine on EM, as the current rally is being led by MXN, BRL, and ZAR, all of which face heightened risks”