Convergenc­e re-emergence

Dünya Executive - - REPORT - Mark McCorm ck, strateg st, TD Secur t es

Econom cs and pol t cs have put the dollar under s gn f cant deprec at on pressure.

Tact cally th s move looks mature, but we st ll bel eve that global fundamenta­ls po nt to further pa n for the dollar at year-end. We th nk we are only n the early stages of the unw nd of the broad dollar bull market. Other major central banks are mov ng to a more hawk sh stance, rotat ng emphas s away from the Fed. Further susta ned mprovement n the global growth backdrop and rebalanc ng of global cap tal flows w ll ntens fy th s process. We update our G10 FX forecasts to reflect these expectat ons. We look for EUR/USD to f n sh 2017 at

1.26 and GBP at 1.38 to see s m lar ga ns aga nst the USD. We see some scope for a dollar correct on n early 2018, as US fundamenta­ls may rega n an edge once the r latest decelerat on s complete. St ll, th s looks l ke a temporary bl p or pause n the downturn rather than a reversal. Trends n cap tal flows and valuat on also po nt to extended dollar weakness. As nvestors cont nue to reallocate nto global equ ty markets, Europe has been a major benef c ary. The balance of payments dynam cs rema ns robust n that reg on and Euro area f nanc al flows have started to mprove as a result. We expect th s to cont nue, espec ally as the European Central Bank moves to taper further. Desp te recent decl nes, the dollar rema ns the most overvalued major currency n the world accord ng to our metr cs. (Sept. 21)

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