HSBC Predicts a Possible Shift in USD Model

In the past, the USD has been benefited by the global economic crisis, and the recent data around the world has been indicating gloomy times at present. This has been ‘risk off’ for the United States dollar and there has been a recorded increase in the dollar price. However, the impact of QE3 is not good for the USD. QE3 impact is a ‘risk on’ for the financial assets. This has created a standoff for the USD according to the market research head at HSBC, David Bloom.

The analyst also said that this type of situation creates a ‘perverse dynamic’, which is rather complicated to explain and understand. The market is that way and the magnitude of changes is so enormous that we cannot accurately explain the changes. The only way to go ahead is to note the pattern and predict the implications.

Perverse Dynamic

The United States market data, if disappointing, will not affect the USD in a negative manner as it does not hassle a ‘risk off’ situation. So the reaction from the USD will still be positive. However, prolonged and substantial disappointments will provoke a ‘risk on’ situation because, the analysts and the market as a whole will be expecting an aggressive response in the form of policies. Hence, the reaction of the USD will be negative. He also said that the level to which the market can take advantage of weaker data reports is limited to a small amount.

Dollar Rise Not Sustainable

Bloom also pointed out that the positive response due to weaker data is only momentary and cannot be sustained over a period of time. This is because additional policies to compensate the lack of good numbers will only delay the day on which the rates will and should drop. He said that if asset prices increase only for the reason that there is a new buyer in the market and not because the fundamentals which decide the rate has not increased, then the gap between the prices and fundamental requirements will have to be closed sooner or later.

He concluded that we are witnessing a possible archetype shift in the model of the US dollar, which doesn’t display any prospects for further growth.