I want to talk about the dollar. Just given how we've really kind of
reached some levels, whether it's the euro break above 110, the power, no one
really thought that we could hit 124 right now.
Is there a further unwind and there's dollar downturn trend
five on a rush? I think at least in the short term,
let's divided up into the next few weeks relative to the second half of the year
over the next couple of weeks. I think the dollar will actually gain
back a little bit of graft. The reasons for that is that when we
look at things like earnings, for example, which are really kicking also
to the next couple of weeks, it looks as if US companies have managed to guide
the market into a pretty pessimistic sort of state.
So consequently, what we've seen so far in earnings is things have started to
look a little bit better than some analysts expect.
Secondly, I think at least from a growth perspective, while we think that the
high level indicators in the US continues deteriorate, what we'll see
bottom up is the relative resilience, particularly of things like the labor
market over the next month or so. But as we get into the second half of
the year, it is very clear for us that the US growth situation is going to look
relatively worse to that in Europe, for example, as well as potentially in the
U.K. and in other countries like Australia.
And also, I mean, with respect to China. So we do think that the dollar is going
to deteriorate over the second half of the year.
And we will see these currencies, particularly some of the laggards like
the Aussie dollar, for example, will start to actually pick up a lot of the
gains over the next three to six month. Wayne is estranged that we see the
gold prices go up quite markedly. Dollar go down.
Is that inverse relationship back? Because it's ages since that inverse
correlation has worked. I think the least the correlation with
the dollar in gold has been relatively strong for most of this year.
Rush That negative correlation we expect will continue, particularly as we're
seeing a lot more strength on areas of investment demand as well as in areas of
central bank demand for gold. Some of that is indeed to diversify
their portfolios out of dollar base into other assets, and gold has been the
recipient of some of that demand. I think the other point with respect to
gold is that relationship to real interest rates that we saw over the
course of the previous decade up to 2021.
We think that that's reasserting itself this year.
Last year, the relationship with real interest rates was very weak with
reference to gold. But this year we can see the early signs
since the start of February, actually, that that relationship, that negative
relationship of relative interest rates to gold is starting to really picked up.
And so and given the fact that we think that inflation is going to still be
relatively sticky in the US, inflation will come down.
But at the core level, it is going to remain above the Fed target.
But we do think that the US economy will be in a position, whereas deteriorated
sufficiently that the Fed will start to talk about at least easing rates into
2024. Now that's going to see real interest
rates continue to move downwards in the US over the course of the second half,
and that will also support gold prices higher.
And so I'm just wondering, when it comes to what you mentioned, you know, the
dollar story and the euro, is that. Does that make an environment where even
currencies can actually bode well? I mean, is that the best way to feed
that dollar weakness or bad faith of illustrate, I should say?
I think it is to some degree actually bond.
But I also think that, as I said earlier, currencies like the Australian
dollar, where the current account is in a very solid surplus to trade balance,
has been very, very strong. China is now very clearly recovering.
And in particular, the housing market in China is doing much, much better than
what many of us had expected. And so the consequence of this is that
these laggards, particularly in the G10 to a weaker dollar, will start to pick
up some momentum. And I think that's one area where we see
a lot of gains to be made in things like the Aussie dollar, but also European
growth is doing better. The European economy is starting to move
forward quite nicely. Obviously, the ECB will continue to hike
interest rates. And so consequently, we think the euro
can also do well in that environment.