[AndrewWoo]

For the first time in a while, the USD is showing across the board gains against the major currencies on the session so far. While the underlying trend remains fairly well set against the USD still – event risk (central bank meetings Thursday, payrolls Friday) plus equity market losses on the back of downbeat growth comments from China seem to be getting the better of the USD bears. While the markets pounced on Russia’s comments yesterday that the BRIC nations would be mulling a “supra-national” reserve currency alternative to the USD to drive the currency lower, wire reports today suggesting that Asian countries would stick with US Treasury products in the event of a sovereign downgrade has helped steady USD sentiment. There remains a fair degree of debate in the markets about how far the USD will fall and what, indeed, are the drivers of this move; there is certainly a strong sense of “normal service” being resumed in the global economy which may be driving assets back to their “pre-Lehman” levels but putting that argument ahead of the very real, threat to the USD from the deteriorating fiscal position in the US rather ignores why the USD was weak before the credit market blow up; the US twin deficit position. Whether its is the normalizing of the markets back to pre-2008 trends or the current concerns about the US’s rising debt loads, we think the USD has further to fall in the medium term.