Tuesday, June 21, 2011

Morgan Stanley: dollar will rebound in the second half of 2011

 Analysts at Morgan Stanley expect US dollar to rebound during the second half of the year as Asian central banks from China to India raise interest rates to curb inflation, damping economic growth and demand for the region’s assets. The specialists underline that liquidity conditions start to change at a macro level and the global investment environment is becoming less favorable. As a result, investors’ demand for US dollar will strengthen.

According to Morgan Stanley, Swiss franc will also benefit from this process, while Japanese yen will get support in the short term, though in the longer perspective it will suffer from the consequences of March earthquake.    

Another positive factor for US currency is the end of the Federal Reserve’s QE2 program. In addition, less demand for assets in the Asian nations will reduce selling pressure on dollar linked to the carry trade that involved selling dollars to buy the currencies of Norway, Australia, Canada and New Zealand.

The Federal Reserve’s U.S. Trade-Weighted Major Currency Dollar Index lost 12% this year hitting the all-time minimum of 68.2405 on May 2. The People’s Bank of China lifted up reserve requirement ratio last week to a record 21.5% for the biggest lenders. The Reserve Bank of India raised interest rates 10 times since the start of 2010.