Helaba Research
FX FOCUS
14 October 2015
US dollar
AUTHOR
Christian Apelt, CFA
phone: +49 69/91 32-47 26
research@helaba.de
EDITOR:
Claudia Windt


PUBLISHER:
Dr. Gertrud R. Traud
Chief Economist/
Head of Research
Helaba
Landesbank
Hessen-Thüringen
MAIN TOWER
Neue Mainzer Str. 52-58
60311 Frankfurt am Main
phone: +49 69/91 32-20 24
fax: +49 69/91 32-22 44

The currency market has been sailing along in smoother waters; the euro-dollar exchange
rate moved up slightly. The currencies of commodity exporters and of a few emerging
markets recovered markedly.
The US dollar weakened against the euro in recent months – irrespective of its appreciation
against many other currencies. The fact that the turnaround on interest rates by the Fed has
not happened yet and a declining US yield advantage weighed on the currency. Moreover,
uncertainty about the economy in the US has grown. And since valuation and the technical
data also argue against the dollar at this time, the euro-dollar exchange rate should rise
independent of the timing of the turnaround on interest rates. The Greenback will show
appreciation potential again only in the course of 2016.
Helaba Currency Forecast
Euro performance on a month-over-month basis
% vs. euro compared to the previous month (from 09/14 to 10/13/15)
US dollar
-0,5
Japanese yen
-0,1
British pound
-1,7
Swiss franc
0,6
Canadian dollar
1,2
Australian dollar
0,9
New Zealand dollar
4,3
Swedish krona
0,9
-0,4
Norwegian krone
-0,4
Czech koruna
Polish zloty
-0,6
This publication was very
carefully researched and
prepared.
However,
it
contains
analyses
and
forecasts regarding current
and future market conditions
that are for informational
purposes only. The data is
based on sources that we
consider reliable, though we
cannot
assume
any
responsibility for the sources
being accurate, complete,
and
up-to-date.
All
statements in this publication
are
for
informational
purposes. They must not be
taken as an offer or
recommendation
for
investment decisions.
Hungarian forint
0,6
6,6
2,9
2,6
Russian ruble
Turkish new lira
South Korean won
Chinese yuan
0,0
1,2
Indian rupee
South African rand
-1,0
Brazilian real
-2,5
0,0
Mexican peso
■ Core currencies ■ Rest of G10 ■ Currencies of emerging markets
Sources: Bloomberg, Helaba Research
HELABA RESEARCH · 14 OCTOBER 2015 · © HELABA
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FX FOCUS US DOLLAR
USD: facing a headwind
Dollar appreciation against
euro has stalled
The US dollar was one of the strongest currencies this year. The fast-paced dollar rally began
already in the middle of 2014. While the surge of the Greenback against currencies from emerging
markets and commodity exporters continued in recent months, the appreciation against the euro
and the Japanese yen stalled. To be exact, the euro-dollar exchange rate reached its low already
back in March at 1.05, and it has been rising since to more than 1.14 most recently.
The strength of the US dollar was based on the expectation that the Federal Reserve, in contrast
to many other central banks, will embark on a more restrictive monetary policy. This would make
the Greenback more attractive by virtue of the interest advantage that would entail. The other
central banks, chief among them the ECB, contributed their share to a lower euro-dollar exchange
rate with their expansionary measures (like the asset-buying program). But the Fed has not yet
carried out the interest rate hike that was already expected back in the spring, even though it
continues to speak of rate hikes this year.
Dollar boom in the summer only still in the broad index
Yield differences turning against the US dollar
USD
USD
Index
Sources: Macrobond, Bloomberg, Helaba Research
Fed has not yet
dared to move
% points
* Difference from OIS 1-Year-Forward in 2 years;
Sources: Macrobond, Helaba Research
The robust development in the US labour market – especially the decline in the unemployment rate
to 5.1 % – argues for a more restrictive monetary policy. And the projected economic growth of
right around 2.5 % this year requires no continuation of the zero interest rate policy. On the other
hand, the Fed is not under any immediate pressure to act: because of the slump in the price of oil,
inflation is close to zero. Notwithstanding the tighter labour market, wage inflation is only moderate.
Moreover, GDP has noticeably slowed in the third quarter. And the payroll numbers also rose more
slowly recently. In addition, the development in the financial markets and the world economy –
especially China – likewise justify a wait-and-see attitude on the part of the Fed.
The interest rate turnaround is by no means off the table this year. After all, the Fed’s credibility will
also suffer if it does not back up its words with actions. However, independent of the first step, it is
becoming evident that this cycle of interest rate hikes will be exceedingly slow and cautious. For
example, in the US yields for two- to three-year maturities are declining, and thus also the US
interest advantage against the euro, which had risen into the first half of 2015. As it is, the decline
of the euro-dollar exchange rate seems exaggerated already when comparing the yield
differences. With interest rate speculations shrinking, the air will become thinner still for the US
dollar.
Valuation argues against
the US dollar
Added is the fact that longer-term arguments do not support the US dollar, at least against the
euro. In terms of purchasing parity around 1.25 US dollars, the euro is clearly undervalued. While
the euro zone can post a notable current account surplus, the US is persisting in a deficit. To be
sure, the deficit has shrunk by more than half when measured against GDP. However, beyond the
energy sector – the higher domestic oil production and the slump in the oil price have reduced the
HELABA RESEARCH · 14 OCTOBER 2015 · © HELABA
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FX FOCUS US DOLLAR
import demand – US foreign trade improved only marginally. Excluding oil, the deficit in the trade of
goods is drawing close to record levels again.
Current account balances support euro vs the dollar
“Golden Cross“ in the euro-dollar exchange rate
Net current account balance in % of GDP
USD
Sources: Macrobond, Helaba Research
Sources: Macrobond, Helaba Research
Euro-dollar rate recovery
continuing for now
On the one hand, the expansionary policy of the ECB is supporting the US dollar, especially since
at least a temporal expansion of the asset purchases beyond September 2016 cannot be ruled out.
On the other hand, the high valuation and the lower yield advantage are weighing on the US dollar.
Even a first rate hike in December should not fundamentally alter the picture; after all, this has
already been priced into the currency market. The continuing one-sided positioning on the part of
speculative investors (more like a contra indicator) and technical factors (the “Golden Cross” – the
50-day moving average breaks through the 200-day moving average from below) tend to speak for
a stronger euro. The euro-dollar exchange rate should rise to as high as 1.20 in the coming
months. The tide will turn in favour of the US dollar only when the Fed, in the course of the coming
year, gets serious and will follow the first rate hike with a series of additional moves.
HELABA RESEARCH · 14 OCTOBER 2015 · © HELABA
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FX FOCUS US DOLLAR
Helaba Currency Forecasts
Performance
year to date 1 month
vs. Euro
current*
Forecast horizon at end ...
Q4/2015
Q1/2016
Q2/2016
Q3/2016
(vs. Euro, %)
US dollar
6,3
-0,5
Japanese yen
6,3
-0,1
136
138
138
136
136
British pound
4,1
-1,7
0,75
0,74
0,72
0,70
0,69
Swiss franc
10,4
0,6
1,09
1,10
1,10
1,10
1,10
Canadian dollar
-5,2
1,2
1,48
1,56
1,54
1,46
1,46
Australian dollar
-5,8
0,9
1,57
1,64
1,62
1,53
1,53
New Zealand dollar
-9,4
4,3
1,71
1,79
1,76
1,67
1,64
Swedish krona
2,0
0,9
9,26
9,25
9,10
9,00
8,80
Norwegian krone
-2,9
-0,4
9,28
9,20
9,00
8,90
8,70
0,0
0,4
120
115
115
118
118
vs. US-Dollar
Japanese yen
Swiss franc
1,14
1,20
1,20
1,15
1,15
(vs. USD, %)
3,8
1,1
0,96
0,92
0,92
0,96
0,96
Canadian dollar
-10,9
1,7
1,30
1,30
1,28
1,27
1,27
Swedish krona
-4,1
1,4
8,14
7,71
7,58
7,83
7,65
Norwegian krone
-8,6
0,3
8,16 1,57
7,67
7,50
7,74
7,57
US-Dollar vs. …
(vs. USD, %)
British pound
-2,1
-1,2
1,52
1,62
1,67
1,64
1,67
Australian dollar
-11,4
1,5
0,72
0,73
0,74
0,75
0,75
New Zealand dollar
-14,8
4,9
0,66
0,67
0,68
0,69
0,70
*13.10.2015
Sources: Bloomberg, Helaba Research 
HELABA RESEARCH · 14 OCTOBER 2015 · © HELABA
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