Lee Hardman

The recent escalation in the trade war between the U.S. and China is a dollar positive story. We are relatively pessimistic and feel we are unlikely to get a trade deal before the end of this year, which should keep the dollar well bid, unless we see a more aggressive Fed rate cut cycle in response to recession fears in the U.S., it is difficult to see in the near-term what will trigger a sustainable reversal of the strong dollar trend that has been in place for the last couple of years.

If the UK votes to remain it would give the green light for the Fed to resume rate hikes in July assuming that they haven’t already raised rates before the referendum.

Optimism from earlier this year that policy stimulus in China would provide more support for economic growth in Asia appears to be fading, in these circumstances, commodity-related and emerging market currencies are coming back under downward pressure against the dollar.

Finance Minister Aso stated strongly that sudden yen strength or weakness is bad and that Japan has the means to intervene, he also attempted to alter market expectations that US opposition will prevent Japan from intervening. Overall, the comments do not significantly change our view that direct intervention to dampen yen strength remains unlikely in the near-term.

Still the focus is on increasing concerns over slowing growth in a number of emerging economies, chiefly China. And within the G10 currencies, the Aussie and New Zealand dollars are the proxies for that, the majors are still fairly trendless.

The euro is continuing to rebound, supported by the ongoing adjustment higher in euro zone yields. (This)... is in part supported by strengthening growth in the euro zone and higher inflation expectations.

We see the dollar moving towards parity with the euro in the third quarter, but if something happens around Greece, it may come sooner.

It's been the typical kneejerk reaction to additional stimulus in China, that should just be temporary. So far the stimulus has had relatively little impact in terms of preventing the slowdown in China. We think there is more pressure on the Aussie to come.

They (Fed) are still on course to raise rates, but they will do that at a more gradual pace over the years ahead, a lot of people were looking for more attractive levels to buy the dollar after the recent strong moves, and the meeting provided that, so the rebound now makes perfect sense.

The developments in Greece have prompted some concerns among global investors, at least in the near-term, which is boosting safe-haven demand for the yen, it's probably fair to say Greece could leave the euro and it would have less of an impact than in 2012, but it would be dangerous.

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