Title: Nomura Analysts Forecast Continued Weakness in U.S. Dollar, Impact on Asian Markets - Expert Analysis
Investing.com -- In a recent note, Nomura analysts predict ongoing weakness in the U.S. dollar, particularly in Asian markets. This forecast is based on various macroeconomic factors, positioning adjustments, and portfolio reallocations that are expected to exert downward pressure on the USD in the near future.
One key factor driving this outlook is the expected narrowing of the growth differential between the U.S. and Europe, which has been a significant driver of USD strength. Nomura anticipates a weakening of the U.S. growth outperformance, with the GDP growth gap between the U.S. and the EU projected to shrink in the coming quarters.
The analysts also point to significant shifts in speculative positioning as a contributing factor to the anticipated USD weakness. They believe there is potential for these positions to turn short on the USD, driven by increased portfolio allocation towards Emerging Markets (EM) in Asia and unwinds of USD accumulation by various entities.
Furthermore, the analysts highlight the potential unwinding of substantial USD hoarding in Asia, particularly in countries like China, Taiwan, and Korea, as a factor that could further pressure the USD. They also expect foreign portfolio investments into Asia to increase, driven by a recovery from previous outflows.
Looking ahead, the analysts suggest that the upcoming Federal Reserve rate cut cycle, expected to begin in September 2024, could lead to further USD weakness, especially against Asian currencies. They point to historical data showing that USD/Asia currency pairs tend to weaken around the time of the first Fed rate cut.
Overall, the anticipated USD weakness could have significant implications for investors and individuals in Asian markets. It may lead to changes in currency exchange rates, investment strategies, and overall market dynamics. Understanding these trends and their potential effects on personal finances and investments is crucial for making informed decisions in a rapidly changing financial landscape.