Bond Outlook April 26th

We at bridport have long been advocating the USD as a fundamentally overvalued currency. This opinion is based on the perceived frailty of the two economic fault lines that have to date been providing artificial support to the USD: the US housing bubble and Chinese support of the USD. Certainly we have not been alone in voicing these concerns and like others have been premature in sounding the death knell for the greenback. However we appear to be finally vindicated as the inevitable cracks are now beginning to appear in the USD. In this version of the weekly we examine the likely effects that a depreciation of the USD will have on Asian economies, as we start to come to terms with the belief of an emergent tri-polar world.

The short term outlook on the USD does not look good. The Fed is close to the end of its tightening cycle, one maybe two more 25bps increases remain. The ECB is still only at the beginning of its cycle, and if you believe the forwards markets another 1% is priced in over the coming 12 months.