Don't see dollar on strengthening-spree going forward: HSBC

Yesterday there was quite a bit of nervousness around the currencies and what might happen because of the news coming in from Europe. However, Paul Mackel, Managing Director - Head of Asian Currency Research HSBC was impressed by stability in euro this morning.

He told CNBC-TV18 that he is positive to see stability in euro-dollar index coming back. Going forward, Mackel doesn't see dollar on strengthening-spree and he is bearish on it. Below is the verbatim transcript of his interview to CNBC-TV18 Q: Where do you expect to see the euro-dollar trading at because that in turn will have an effect on many Asian currencies? A: Yes that is true. The stability in the euro-dollar exchange rates, this morning is quite impressive. Certainly there was lot of fear yesterday. We had a rather large move down in the euro. Perhaps that was one of the key reasons one couldn’t have such an extension in the currency being maintained. However, the stability today is interesting. Maybe it is an indication that some of the fear that we had yesterday is perhaps not warranted any more. Q: Is there a possibility that this level of 1.29 actually holds out and does not crumble as was the consensus yesterday? A: It is a possible scenario. What we are depended now is what is going to happen with the vote in Cyprus. Whether there could be any further changes on the deposits scheme, levies being imposed. The other thing we have to bear in mind is that, we are moving into the window for the Federal Reserve and what is going to be happening there and whether they are in a position to actually be more upbeat on growth. Also, we talk about what would be the conditions in quantitative easing (QE) earlier. These are the other conditions to bear in mind for something like euro-dollar. It is not just about Cyprus, it is also about the Federal Open Market Committee (FOMC). Q: The dollar seems to be threatening to start a rally when the dollar index moved past 83 a couple of days back. Are you expecting the dollar to go on a strengthening spree in the next few weeks? A: No. That is not our view. Our view is still pretty much on the dollar bearish side of things. I think it has held up better than perhaps what we were originally thinking. Some of the growth in US has come up better than expected. Some of the language from some of the Fed members has also been on the hawkish side. It is also reflected by the way some of the treasury yields have been going up. We were not expecting this type of momentum to be maintained by the dollar or the dollar index. We still believe that this type of pattern will be petering out. But we are facing quite a big test right now with regards to the FOMC, what are they going to be saying? Are they going to be changing expectations? But given Ben Bernanke’s latest language we are not expecting any meaningful changes from what he has been saying just at the last policy meeting. Q: What are your expectations on the Indian rupee, the INR? A: The currency is also held up quite well. We were trying to be on the positive side going into the Budget at the end of February. It didn’t quite work perhaps the way we wanted it to. However, despite the skepticism with the Budget, the currency did not sell-off too much. So, one has this stability coming through in dollar-rupee. I still get a sense from offshore investor at least that they are quite interested in trying to be short dollar-rupee. The external thinking is more positive with regards to the reform process. At least we have to see what happens with the Reserve Bank of India (RBI) today. If they disappointed and didn’t cut rates – yes dollar-rupee would pop higher. However, I get a strong interest in these offshore that people want to be long rupee right now.