Helaba Research
FX FOCUS
19 February 2016
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 US dollar weakened noticeably in recent weeks. The winners, along with the currencies
of commodity exporters, were above all the losers of the previous months like the Russian
ruble or the South African rand.
The dollar boom has stalled, most recently even against the currencies of emerging
markets. Weaker economic data and declining interest rate expectations depressed the US
currency. The US dollar remains vulnerable to setbacks at least temporarily, also because
of the previous, massive appreciation. However, as the year progress, the Fed is likely to
resume its course of interest rate hikes. The US dollar will presumably benefit from the
divergence in monetary policy, even if the upside potential is limited.
Helaba Currency Forecast
Performance on a month-over-month basis
% vs. euro compared to the previous month (from 01/20 to 02/18/16)
US dollar
-2,0
Japanese yen
1,2
British pound
-0,9
Swiss franc
-0,8
Canadian dollar
3,6
Australian dollar
1,6
New Zealand dollar
1,3
Swedish krona
-0,2
Norwegian krone
1,3
Czech koruna
0,1
Polish zloty
2,3
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
1,5
Russian ruble
4,8
Turkish new lira
0,4
South Korean won
-2,8
Chinese yuan
-0,6
Indian rupee
-2,6
6,6
-0,2
-0,7
South African rand
Brazilian real
Mexican peso
■ Core currencies ■ Rest of G10 ■ Currencies of emerging markets
Sources: Bloomberg, Helaba Research
HELABA RESEARCH · 19 F EBRUARY 2016 · © HELABA
1
FX FOCUS US DOLLAR
USD: for now without any zest
Setback for the
Greenback
The US dollar’s surge has floundered. The euro-dollar exchange rate even rose temporarily to as
high as 1.14 – in March 2015 it was still trading at 1.05. The heightened nervousness in the
financial markets weighed on the Greenback vis-à-vis the euro. The dollar appreciation lost
momentum against currencies from industrialized countries already in 2015. Most recently, it lost
ground even against currencies from emerging markets, after the Greenback was still able to
advance against this group until January 2016. And this even though the US central bank raised its
key rate in December of 2015, the first time since 2006.
The big buzzword in the currency market was the divergence in monetary policy. In contrast to the
more restrictive US monetary policy, many other central banks cut their key rates or weakened
their currencies through asset-buying programs. The price slump in commodities and political
problems in some emerging markets additionally boosted the demand for the US currency. Tradeweighted, the US dollar appreciated since the middle of 2014 by about 25 % at the peak.
US dollar weakens, now also in trade-weighted terms
US yield advantage shrinking
USD
USD
Index
Sources: Macrobond, Helaba Research
% points
Sources: Macrobond, Helaba Research
This happened even though the appreciation of the dollar is supported by the strength of the US
economy only to a limited extent. In 2014, the US was still growing far more robustly than the other
industrialized countries, but the lead had evaporated already in 2015. In fact, GDP growth was
particularly paltry in the final quarter. And a few less-than-optimistic sentiment indicators also
counsel caution. The interest rate advantage of the US dollar declined noticeably in the capital
market. Is this the impending end to the dollar boom?
Solid growth – cycle of
interest rate hikes
not over yet
In fact, the Federal Reserve is likely to proceed very carefully given the less-than-stellar growth,
the low inflation (thanks to oil prices), and the turbulent capital markets. Moreover, the strong US
dollar is a concern to the central bank. For now, the Fed is likely to hold off on further rate hikes –
according to the most recent statements by representatives of the central bank. However, it is by
no means certain that the cycle of rate hikes is already over shortly after it began. In the first
quarter of 2016, the “hard” economic indicators point to solid growth. The labour market has so far
proved fairly robust, with the unemployment rate actually posting a cyclical low. Even wage growth
accelerated recently. Should these trends continue as expected, the Fed will presumably continue
its rate hikes – even if cautiously – from the middle of the year.
Other central banks are heading in a different direction in their monetary policy. The ECB is likely
to take further expansionary measures in March. Japan’s central bank has just now discovered the
instrument of negative deposit rates. Further rate hikes by the Fed would expand the US yield
advantage and favour the US dollar. With that, the basic story for a stronger US currency remains
intact, even if its appreciation potential is limited.
HELABA RESEARCH · 19 F EBRUARY 2016 · © HELABA
2
FX FOCUS US DOLLAR
Valuation limits dollar appreciation potential
Speculators are unwinding their bets against the euro
USD
USD
Sources: Macrobond, Helaba Research
Sources: Macrobond, Helaba Research
Slight dollar
appreciation in 2016
% of Open Interest
With its overall rally, the US dollar has already anticipated a good deal – in spite of the most recent
setback. Even rising interest rates should no longer give it a strong boost. The Greenback is
already quite expensive on the basis of valuation indicators. The heightened risk aversion in the
financial markets hurts the US dollar, not least because speculative investors are noticeably
reducing their bets on a falling euro in such an environment. As a result, the euro-dollar exchange
rate could temporarily rise to as high as 1.15 in the coming months. It is only over the course of the
year that the divergence in monetary policy should favour the US dollar again, and the euro-dollar
rate drop back down to 1.05.
Helaba Currency Forecasts
Performance
year to date 1 month
vs. Euro
current*
Forecast horizon at end ...
Q1/2016
Q2/2016
Q3/2016
Q4/2016
(vs. Euro, %)
US dollar
-2,2
-2,0
1,11
1,10
1,15
1,10
1,05
Japanese yen
3,9
1,2
126
129
129
130
131
British pound
-4,9
-0,9
0,77
0,77
0,75
0,73
0,70
Swiss franc
-1,3
-0,8
1,10
1,10
1,10
1,10
1,10
Canadian dollar
-1,4
3,6
1,52
1,51
1,56
1,45
1,41
Australian dollar
-3,9
1,6
1,55
1,59
1,64
1,55
1,50
Swedish krona
-2,2
-0,2
9,38
9,20
9,10
9,00
8,80
Norwegian krone
0,7
1,3
9,54
9,40
9,30
9,00
8,70
Chinese yuan
-1,8
-0,6
7,22
7,26
7,71
7,48
7,14
vs. US-Dollar
(vs. USD, %)
Japanese yen
6,2
3,3
113
117
112
118
125
Swiss franc
0,9
1,1
0,99
1,00
0,96
1,00
1,05
Canadian dollar
0,8
5,7
1,37
1,37
1,36
1,32
1,34
Swedish krona
0,0
1,8
8,44
8,36
7,91
8,18
8,38
Norwegian krone
2,9
3,3
8,59
8,55
8,09
8,18
8,29
Chinese yuan
-0,4
0,9
6,52 1,57
6,60
6,70
6,80
6,80
US-Dollar vs. …
(vs. USD, %)
British pound
-2,7
1,0
1,43
1,43
1,53
1,51
1,50
Australian dollar
-1,8
3,6
0,72
0,69
0,70
0,71
0,70
*18.02.2016
Sources: Bloomberg, Helaba Research 
HELABA RESEARCH · 19 F EBRUARY 2016 · © HELABA
3