Ben Laidler, global markets strategist at the trading and investment platform eToro, analyzes the behavior of the main currencies, with the dollar “the best performer of the G10 this year, as markets react to greater strength in US growth and stronger inflation.” “The pound sterling has a lot in common with the dollar and has remained on par, while the yen has taken a detour and has been the big laggard,” he points out.

The dollar is well valued as macroeconomic differences widen

RALLY:

The dollar is near its highest level since November and is the best-performing G10 currency this year as markets react to stronger US growth and stronger inflation, pushing up yields. bonds and widens spreads.

This has delayed the start and softened the magnitude of planned US interest rate cuts this year. This US exceptionalism is now better priced as much of the dollar's outperformance is behind us and the impact on commodities and emerging markets is limited.

However, conditions are divergent and may lead to further dispersion of currencies. The pound has a lot in common with the dollar and has remained on par, while the yen has taken a detour and has been the big laggard. New Zealand is prepared for more increases, but Switzerland and the ECB are the first to cut.

GBP:

The pound sterling has been the "dollar of Europe", and is equally overvalued by 7%. Superconsumer Britain has cushioned its technical recession, while inflation remains at double target, giving the Bank of England plenty of ammunition to buck market hopes for an early rate cut.

The GBP's outperformance is in stark contrast to the underperformance and downtrend of other UK assets, and has undermined the large caps of the FTSE 100, which are focused on foreign sales.

The "spring budget" on March 6 is the next catalyst and may be positive for the GBP if we see well-calibrated tax cuts, while October election risks are likely to be ruled out with Labor 20 points ahead in the elections. surveys and displaced to the center.

JPY:

The yen's underperformance has resumed as US growth exceptionalism has coupled with the Bank of Japan's slowness in normalizing its monetary policy.

USD/JPY has broken below the psychological level of 150 again, prompting verbal intervention from the authorities. But a more forceful intervention is unlikely, given fundamental factors and the fact that a rate hike is not likely until mid-year, from the current level of -0.1%.

The yen is the cheapest currency in the world and is undervalued by approximately 25% in real effective exchange rate terms. The weakness has given new impetus to the Nikkei255, which is now approaching its 1989 all-time high, boosted by export growth of close to 10%.

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