Currency Wars, Are They Back?

February 1, 2019 10:04AM CST

My 2 favorite currencies moving forward are the yen and British pound. We have held a fundamental view since November that the USD’s best days are likely behind it. We heard from a very obedient Federal Reserve Committee on Wed - expressing that they have now put their interest rate hikes on hold for the remainder of the year.  This is not a bullish scenario, as less aggressive interest rate policies tends to lead to a weaker outlook for the USD. On the other side of this outlook is the Euro Currency, that as all currency traders know, carries an inverse relationship to the USD. It’s our fundamental outlook that the euro zone could be barreling towards a recession and we fully expect the ECB to react in kind to the U.S. Fed with a more dovish monetary policy stance. 

So what do you do? You don’t want to buy the USD and you don’t want to be invested in the euro – we think the bullish case for Gold (yes I consider Gold a currency), Japanese yen, and British pounds is very strong moving throughout 2019. Japan has made mention of adopting an ever so slightly less dovish monetary stance, coupled with the yen being a safety destination during times of economic distress.  Furthermore, there will be less of a need for the yen to carry trade (borrowing in yen at a rock bottom interest rate and converting/investing in another foreign currency – most commonly the USD) as global interest begin to decline. The case being made for the British pound as an investment destination is as simple, as BREXIT is finally in the rearview mirror (and potentially avoiding some of the residual effects of an impending European recession).

British Pound Weekly Chart

British Pound Weekly Chart

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