SocGen sees 'huge' risk of US dollar correction
SocGen says US dollar almost 10% overvalued
According to estimates of fundamental equilibrium exchange rates (FEER), the US dollar is almost 10% overvalued and its rise over the past year will knock 0.5% off GDP growth annually for the next five years, notes SocGen.
"FEERs are interesting rather than useful from a forecasting perspective, but the FOMC's view of the impact of dollar strength will inform Fed policy and in particular, the tone of the anticipated 16 December statement. Think hyper-dovish. Before we get to that, we have the ECB next week who have promised us more easing and can't afford to disappoint.
That may keep the dollar rallying for another two weeks, but after that, the risk of a correction (softer dollar) is huge," SocGen argues.
For bank trade ideas, check out eFX Plus.