CIBC FX Strategy Research notes that the US current account data released last week showed that the Q2 deficit was roughly $8bn wider than analysts had been expecting, and a full $10bn wider than the first quarter.
"We have been saying for some time that the wide current account deficit is placing a drag on the US dollar. But that was only true in the absence of any strong impetus from interest rate
.Given the backup in market expectations, we and FOMC members expect interest rates to rise faster than where the market is priced, placing yields back in the driver’s seat for currencies.
A significant part of the repricing is expected occur over the remainder of 2017, and should result in a near-term boost to the US dollar against a number of majors," CIBC argues.
In line with this view, CIBC targets EUR/USD at 1.18 and GBP/USD at 1.30 by end-of-2017.
Source: CIBC Economics – CIBC Capital MarketsOriginal Article
