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US Dollar Is My Preferred Currency for Investments

US Dollar Is My Preferred Currency for Investments
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Monday, 25 November 2019 12:00 PM Current | Bio | Archive

China has announced increased penalties for cases of intellectual property theft as intellectual property has been a key area of negotiation in the trade dispute with the United States.

The State Council and Communist Party’s Central Office has released an opinion document wherein is stated that China would seek to improve protections for intellectual property rights through both the civil and criminal justice systems and an effective enforcement of penalties. The document also says that by 2022, China should be making progress in issues that have affected intellectual property rights enforcement, such as low compensation, high costs, and the difficulty of proof. By 2025, there should be a better system of protection in place, China’s State Council and Communist Party’s Central Office said.

It will be interesting to see what kind of impact over the short term this will have on the current U.S.-China trade negotiations.

Anyway, financial markets apparently don’t seem being bothered too much by the fact that the Chinese themselves say in the document that we’ll have to wait till 2025 before, what they call, a “better” protection should be in place for intellectual property rights.

Besides all that, today in Europe but also in the U.S., there is something of a focus on central bankers. In Europe, no fewer than four ECB speakers will request the attention of the international media. Of course, the new ECB President Christine Lagarde, who gave her first official speech last week about “the future of the euro area economy,” remains extremely important.

I think, investors could do well taking note of Lagarde’s remarks when she said in her speech: “The ECB’s accommodative policy stance has been a key driver of domestic demand during the recovery, and that stance remains in place. We will continuously monitor the side effects of our policies. But it is clear that monetary policy could achieve its goal faster and with fewer side effects if other policies were supporting growth alongside it.”

For these reasons, at least so far, I cannot see how the Euro area could come back quickly to decent positive growth.

Therefore, and with what we know today, I still expect a euro at U.S. $1.07, which is more or less 3 percent lower against the dollar than today, in the second half of 2020.

So far and notwithstanding all the comments and “wishes” about a weaker dollar that are out there, I still favor the U.S. dollar as preferred currency for short to median term investments in developed as well as in emerging markets (EM).

Nevertheless, in these disturbed times, financial markets may have to look behind beyond ECB president’s policy guidance.

In the “old” days, whatever the Fed chair or the ECB president said was a good guide to the direction of future policy. That may not be so true now. The Fed and the ECB are headed by lawyers and whatever the merits of lawyers may be, lawyers are not economists. Leadership on economic policy may therefore be spread amongst a wider range of central bank speakers than has been the case in the past.

That said, this evening we will also hear from Fed Chair Jerome Powell at the Greater Providence Chamber of Commerce Annual Dinner in Providence, Rhode Island.

It might be helpful to recall that last week, Powell sat down with President Donald Trump at the White House.

Trump commented later that “everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength and its effect on manufacturing, trade with China, E.U. and others, etc., adding that he protested the fact that our Fed Rate is set too high relative to the interest rates of other competitor countries, and that it should be lower than theirs, the Wall Street Journal reported.

Anyway, after the meeting, the Federal Reserve released a statement that read: “Chair Powell said that he and his colleagues on the Federal Open Market Committee will set monetary policy, as required by law, to support maximum employment and stable prices and will make those decisions based solely on careful, objective and non-political analysis.”

For now at least, it looks unlikely that Trump’s view on the Fed’s monetary policy will receive too much attention, but you never know …

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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So far and notwithstanding all the comments and “wishes” about a weaker dollar that are out there, I still favor the U.S. dollar as preferred currency for short to median term investments in developed as well as in emerging markets (EM).
dollar, preferred, currency, investments
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2019-00-25
Monday, 25 November 2019 12:00 PM
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