Weekly: FX – US politics hurt the USD

by: Georgette Boele , Roy Teo

FX-Weekly-30-September-2013-US-politics-hurt-USD.pdf ()

EUR/USD has been mainly driven by the difference in interest rates between the US and Germany. Last week, there was a disconnect. Dovish talk by ECB members pushed German yields lower. Surprisingly these lower yields did not hurt EUR/USD. Recently US economic data have been mixed. This has hurt sentiment towards the US economy. In addition, uncertainty of the approaching of the US debt ceiling and the political fight on the budget also left their mark on the USD. When market sentiment improved, the USD did not receive support because of these doubts. We have revised our dollar forecasts down  on the 3-month horizon, given the Fed’s delay of tapering and the economic and political uncertainty in the US. We have adjusted our year-end EUR/USD forecasts from 1.20 to 1.28. However, we stick to bullish USD view because we are convinced that the stars continue to align for the USD (more on this in our FX Monthly that will be released later today). We have therefore left our 2014 forecasts in place.