Despite the rising rate environment, HSBC expects the US dollar to remain weak. With the exception of the late 1990s, the US dollar tends to depreciate when the Federal Reserve hikes rates. This is because there is no strong relationship between the value of the greenback and US interest rates, said Joey Chew, Director, FX Strategist, Global Research at HSBC.
Ms. Chew, who was speaking at HSBC’s 2018 Asian Outlook and BRI Forum, said that global economic growth can be a much more important driver for the currency. The US dollar’s status as an international financing currency means that when the global economy is strong, sovereigns and corporates all over the world raise debt in dollars, which is then exchanged into their local currency, thus applying downward selling pressure on the dollar.
“We are already in a phase of the global economic recovery where more governments and companies are raising international debt because they want to invest and consume,” said Ms. Chew. “It makes sense that the dollar is weak in this kind of environment.”
Furthermore, the FX markets anticipated the Federal Reserve’s rate hikes, with much of the US dollar’s appreciation actually taking place in 2014, ahead of the policy shift. A similar move has already happened for the euro, said Ms. Chew, due to expectations of a less accommodative monetary policy from the European Central Bank. The next currency to make this kind of adjustment could be the yen, she said.