Helaba Research
FX FOCUS
16 April 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 euro-dollar exchange rate stabilized most recently at a low level. The strongest
currency from the industrialized countries was the Norwegian krone. In the emerging
markets, the Russian ruble stood out with a sharp appreciation.
Since the middle of 2014, the US dollar has appreciated massively against the euro and
many other currencies. The prospect of higher US interest rates and a more expansionary
monetary policy elsewhere supported this movement. However, the appreciation of the US
dollar seems clearly exaggerated on the basis of many fundamental and technical factors,
especially since the economic momentum in the US has weakened. The dollar strength
should therefore come to an end and the euro-dollar rate recover back up to 1.20.
Helaba Currency Forecast
Euro performance on a month-over-month basis
% vs. euro compared to the previous month (from 03/17 to 04/15/15)
US dollar
-0,8
Japanese yen
1,0
British pound
-0,2
3,5
Swiss franc
3,2
Canadian dollar
Australian dollar
0,0
New Zealand dollar
3,1
Swedish krona
-1,3
5,4
Czech koruna
-0,8
Polish zloty
2,8
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.
Norwegian krone
Hungarian forint
1,3
22,8 Russian ruble
Turkish new lira
-4,0
South Korean won
2,1
0,8
Chinese yuan
0,5
Indian rupee
South African rand
1,6
6,2
-0,1
Brazilian real
Mexican peso
■ Core currencies ■ Rest of G10 ■ Currencies of emerging markets
Sources: Bloomberg, Helaba Research
HELABA RESEARCH · 16 APRIL 2015 · © HELABA
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FX FOCUS US DOLLAR
USD: breather
The US currency is triumphant in the currency market. Since the middle of 2014, the Greenback
has not only appreciated nearly 30 % against the weak euro, but it has posted double-digit gains
also against the currencies of nearly all industrialized countries and those of many emerging
markets. By now some are already heralding a new age of the dollar that promises further gains.
By contrast, there is no sign any more of the view that the dollar is in decline, which was quite
common not all that long ago.
Dollar boom already in
its late phase
Away from the short-term movements one can also discern longer cycles in the euro-dollar
exchange rate, cycles that usually last 7-9 years. The current dollar boom did not begin only in
2014. Strictly speaking, the euro-dollar exchange rate hit its high already in the middle of 2008, that
is, nearly seven years ago. The US dollar has been appreciating against the euro since then, even
if it did not do so in a straight line. Looking at the trade-weighted US dollar, the turnaround in the
trend occurred in 2008 or 2011, depending on how the index is calculated.
Decline in euro-dollar rate already in its seventh year
Low US interest rate advantage in historical terms
Index
USD
USD
Sources: Macrobond, Helaba Research
Diverging monetary policy
the previous driver
% points
Sources: Macrobond, Helaba Research
The fundamental underpinning of the dollar appreciation can be found in monetary policy. The US
central bank ended its asset-buying program and even opened the door to interest rate hikes,
although it left the precise timing open. By contrast, many other central banks are becoming more
expansionary. For example, key rates have been cut in Australia and Canada. The ECB has begun
buying sovereign bonds, something the Bank of Japan has already been doing for some time.
The US economy will presumably grow very robustly this year, even if the economic momentum
slowed noticeably during the winter months. The labour market as a whole is recovering – in spite
of weaker data most recently. As a result, it is quite likely that the Fed will raise its key rate this
summer, the first time in nine years. However, the US central bank will proceed slowly in its
interest-raising cycle, especially since inflation is at a very low level also in the US. The dollar
appreciation to date, in any case, is not an argument for an accelerated turnaround on interest
rates.
Dollar appreciation
exaggerated
In previous cycles, the US dollar usually appreciated in the lead-up to a turnaround on interest rate,
but then gave back some of its gains. Moreover, in past dollar bull markets, the US yield advantage
was much more pronounced than it is currently the case. Other valuation indicators, such as
purchasing power parities or real exchange rate indexes, also counsel caution. While the US dollar
was still quite undervalued in 2008 or 2011, it is now clearly – and against the euro even strongly –
overvalued on a trade-weighted basis. The euphoric sentiment is also evident in the extremely high
volume of speculative positions on the US dollar, something that should rather be seen as a
contraindicator. While long-time US problems such as the budget and current account deficits have
eased noticeably in recent years, the euro zone is in a much better position by comparison.
HELABA RESEARCH · 16 APRIL 2015 · © HELABA
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FX FOCUS US DOLLAR
Euro-dollar exchange rate extremely undervalued
Large bets against the euro as contraindicator
USD
Contracts in thousands
Sources: Macrobond, Helaba Research
Sources: Macrobond, Helaba Research
Countermovement
likely
USD
The actual turnaround on interest rate could give the Greenback another short-term boost. The
same is true for renewed euro upheavals because of Greece. But the ECB’s asset buying program
should not be overrated, after all, the Europeans are merely catching up on something the Fed
already did. Moreover, the improving economy in the euro zone is easing the pressure on the ECB
to take action. A number of things suggest that the US dollar has recently disconnected from reality
and has appreciated too much. As a result, one should expect a noticeable countermovement over
the course of the year, which could bring the euro-dollar exchange rate back up to 1.20. At the very
least, this would represent a longer breather.
Helaba Currency Forecasts
Performance
year to date 1 month
vs. Euro
current*
Forecast horizon at end ...
Q2/2015
Q3/2015
Q4/2015
Q1/2016
(vs. Euro, %)
US dollar
13,2
Japanese yen
13,8
1,0
127
134
136
138
138
British pound
7,9
-0,2
0,72
0,75
0,76
0,77
0,75
16,7
3,5
1,03
1,10
1,10
1,10
1,10
Canadian dollar
7,1
3,2
1,31
1,38
1,41
1,44
1,44
Australian dollar
6,4
0,0
1,39
1,41
1,44
1,45
1,45
10,3
3,1
1,41
1,47
1,51
1,54
1,54
Swedish krona
1,3
-1,3
9,33
9,30
9,10
8,90
8,90
Norwegian krone
7,8
5,4
8,36
8,60
8,50
8,30
8,30
Swiss franc
New Zealand dollar
vs. US-Dollar
-0,8
1,07
1,10
1,15
1,20
1,20
(vs. USD, %)
Japanese yen
0,5
1,9
119
122
118
115
115
Swiss franc
3,1
4,3
0,96
1,00
0,96
0,92
0,92
Canadian dollar
-5,4
4,1
1,23
1,25
1,23
1,20
1,20
Swedish krona
-10,6
-0,5
8,73
8,45
7,91
7,42
7,42
Norwegian krone
-4,8
6,2
7,83 1,57
7,82
7,39
6,92
6,92
US-Dollar vs. …
(vs. USD, %)
British pound
-4,7
0,6
1,48
1,47
1,51
1,56
1,60
Australian dollar
-6,0
0,9
0,77
0,78
0,80
0,83
0,83
New Zealand dollar
-2,6
3,9
0,76
0,75
0,76
0,78
0,78
*15.04.2015
Sources: Bloomberg, Helaba Research 
HELABA RESEARCH · 16 APRIL 2015 · © HELABA
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