The chatter of coordinated intervention to weaken the US dollar has dissipated. Deutsche Bank outline why coordinated intervention to weaken the dollar is unlikely for now.
This in brief, but it gives the gist of the note:
- When the Plaza accord was reached in 1985, US inflation was falling, Volcker was cutting rates and the US trade deficit was deteriorating sharply. All reasons to want a weaker dollar. This year, the US trade deficit has narrowed, inflation is proving stubbornly high and the Fed is hiking rates. There is simply no American political, economic or monetary policy imperative to weaken the dollar.
- FX intervention was certainly possible in the event ... (of) ... disorderly moves in exchange rates
- If extreme geopolitical developments lead to market dislocations, central bank intervention remains possible. But unless the global macro environment changes - starting with a peak and significant decline in US inflation - it is hard to see the political or monetary imperative for coordinated intervention in FX.
This chart doesn't stretch back to the 80s but does show the extent of the USD uptrend in recent months
