Part of the recent recovery in markets can be attributed to stability in the Chinese CNY, which can in large part be explained by weakness in the USD. Indeed, by not cutting rates (and instead resorting to QE and credit easing measures) the ECB also played its part in arresting the USD Bull Run.
Last week, the US jobs report showed the first signs of softness in the US labour market, which at a minimum has reduced the probability of a June hike. Given the limits of policy at the lower bound, we think the “beggar thy neighbour” channel of increased competiveness via a weaker currency is important. A more accommodative FED could therefore, perversely, stimulate further rate moves in Europe and Japan.
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