JP Morgan RoW Back on the Dollar

Above: The Chase Tower, New York © Kristen Cavanaugh, Flickr

The latest revisions to JP Morgan's US Dollar forecasts are even more bearish than before.

RoW is one of those smarty-pants acronyms which financial market practitioners seem so keen on, like BRICS, or the border-line insulting PIGS for nations on the Mediterranean periphery.

But RoW, which stands for 'Rest of the World', is intended to convey a current hot trend in foreign exchange that explains how the economies of the 'Rest of the World' are catching up with the US, which by extension means the currencies in the rest of the world are catching up with the US Dollar.

The US was one of the first economies to get over the hang-over that followed the 2008 financial crisis - but the tortoises are catching up - and now investors are looking for fresh investment opportunities in the RoW having already taken advantage of the cyclical growth phase in the US.

For the long-established investment bank JP Morgan, the concept of RoW is central to their hypothesis about where they forecast the US Dollar trading in the future, and in a recently published research note they invoke RoW extensively to justify a fresh set of forecast downgrades for the Dollar.

Strategists Paul Meggyesi and Daniel P Hui wave aside the near-1.0% gain in the Dollar sparked by the higher-than-expected wage rises recorded in January's Non-Farm Payrolls report and instead double-down on the Dollar's bearish outlook, arguing for an even steeper decline.

Meggyesi and Hui comment:

"A strong hourly earnings number in today’s US payroll report has helped the USD index avoid a near-record eighth consecutive weekly decline. While the report today reinforces a period of consolidation after an extended trend in FX markets, the broader backdrop for the USD remains medium-term bearish for now," say the strategists, who then go onto explain their forecasts are because of RoW.

"The overall distribution of data surprises and forecast revisions remain more favourable for ex-US rest-of-world, and even if recent wage firmness reinforces our Fed forecast of four hikes this year, the greater policy shift still remains that coming from the ECB and BoJ."

Revised Forecasts

Starting with EUR/USD, JP Morgan now forecasts the pair rising to 1.25 in March 2018, up from a drop to 1.14 previously. RoW in this context means 'Europe'. Thereafter, they see EUR/USD steadily rising to a peak of 1.29 by the end of the year.

For GBP/USD J P Morgan revise up their previous 1.30 forecast for March 2018 to 1.42, which is close to where the exchange rate is now.
 

Against the Yen Meggyasi and Hui likewise see a weaker Dollar ensuring the exchange rate never errs far from the 110 level, with 112 the highest it will reach, in March 2018, and then a slow decline to 108 thereafter.

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