The U.S. dollar hit its lowest level in three months. Exante Data Inc. Founder and CEO Jens Nordvig joins Yahoo Finance Live to discuss how the U.S. dollar is trading and how to trade currency assets in the current economic environment.
Video Transcript
JULIE HYMAN: We want to move on and talk about currency, which I know is a love of yours as well. The greenback, the dollar that is closed out 2022 with its best performance in seven years, not surprising considering the Fed's aggressive rate hike campaign. Despite the odds, repricing on hawkish Fed bets, it's been a slightly different story this year though. The US dollar recently slumped to its lowest level in three months, showing that bullish bets may be losing steam.
So let's talk about currencies and how then it's going to inter-affect other assets. Jens Nordvig of Exante is still with us. So, Jens, what's going to happen with the dollar if indeed we're seeing inflation moderating and maybe the Fed finishing its interest rate increases?
JENS NORDVIG: Yeah. So I think certainly, how much the Fed is going to do is obviously important. So that element is clear. But I think the other thing to keep in mind is that the dollar had a historical run. Just a historical run from 2014 to 2022. And we had like just a perfect storm in 2022, right?
Like we talked about 75 basis points per meeting. At some point, we talked about 100 basis points per meeting. Like just incredible hawkishness from the Fed. We also had asset price weakness globally that tends to kind of support the dollar from a safe haven mechanism. We had an acute energy crisis in Europe. We were talking about, can Europe survive because of the war and so forth?
This was a very dramatic situation. The dollar got to kind of a peak September last year. That it's going to be hard to kind of surpass, right? So this year has been much different. And I think what is very interesting in terms of how the dollar has been trading is that even in those periods where we've had repricing higher in the US yield curve in February, and again in May, the dollar benefited but just a little bit, right?
It was not like strong momentum. And I think that shows that the dollar has been close to peaking. You can think about it from a valuation perspective as well. Like, where is the dollar relative to history? We have tons of models that do that. I'm just going to give you one model. If you sort of average all the models, you're at least 10% overvalued relative to fair value, right? So that's what's like constraining the dollar's ability to go further from here. And this is pretty important for the outlook.
BRAD SMITH: So what is the comfortable trade that someone can still look to within currency assets right now?
JENS NORDVIG: Well, there's many different ways to trade a weaker dollar, right? You can trade gold long. If you think global interest rates are peaking out, gold long is probably going to work out well. You've seen in the last week or so, the yen has finally started to regain some strength, right? So that's certainly a currency that has weakened 20% or 30%. If it starts to move, it can have big moves. So those are options.
The other end of the spectrum, where you have very high interest rates, that's going to benefit the carrier of your trading is Mexico. Mexico has been like very attractive high interest rates, very strongly performing currency. So there's different ways to express a dollar bearish view.
JULIE HYMAN: Jens, you track a lot of data sets as we know. What's the most esoteric data set that you track, and what is it telling you?
JENS NORDVIG: So we have like a massive database of alternative data, capital flow data, and that kind of thing. It changes all the time. What is the most important? In March, the most important data we track was the daily data on the deposit outflow, right? In January, it was the Chinese reopening. So all the alternative data there, right? So we shift our focus all the time.
I gave you that foreign direct investment data point. I think that's a very important data point now. But I think actually, anything to do with consumption, savings in the US, I think we're in the inflection point. So we're going to be focusing aggressively on any type of data that gives us a read about whether that savings rate is going up and consumption is going down.
JULIE HYMAN: I wonder what the Taylor Swift price-- ticket price index is telling us right now. Nothing good for people who are trying to buy it. All right. Jens Nordvig, great to see you. Thanks so much for spending so much time with us today. Jens Nordvig, of course, is founder and CEO of Exante Data.
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July 12, 2023 at 09:03PM
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U.S. dollar 'close to peaking': Analyst - Yahoo Finance
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