US slowdown prediction puts GFT ahead

"We feel many participants overestimated the immunity other economies would have to the US economic slowdown," said Justin Biebel, foreign exchange dealer at GFT in Ada, Michigan. "Clearly, economic interdependence is as important as ever. While things are far from good in the US, economies elsewhere appear to be declining at a much faster rate."

The online trading company said although the US Fed might have been slower to react than some would have liked, it was months ahead of other central banks. "This has been USD bullish in our view, and was reflected in our projections," said Biebel.

He added that, when forecasting, the company watches the yen crosses closely, as much of its flow is concentrated there. "Typically, we compare some of these data points with our macro views to look for discrepancies or confirmation," he said.

Biebel expects there to be room for more USD strength over the coming months, primarily due to further hedging, for example, on the part of corporates and pensions. He said the restrictive monetary policies of the European Central Bank and Bank of England, reflected in the inverted overnight 10-year rates, suggest rates will either come down or their respective economies are in for some real turbulence. "Either way, it lends support to the USD," he said.

"There's a lot of bad paper out there, and we'll be watching the rate at which companies bite the bullet on it. The sooner that mess gets cleaned up, the more confidence we'll have in sustained USD strength. Until then we need to get through Fannie/Freddie, the election, and a bottom in housing and unemployment," said Biebel.

Saima Farooqi