What is left to support the dollar? - Socgen

Kit Juckes, economist at Societe Generale highlights a negative tone ahead for the U.S. dollar.

Key Quotes:

"The dollar rallied by 15% on a trade weighted between July 2011 and January (since when it's down 4%).

Over 5 years, It's sup against every other major currency, and the three biggest losers (the Brazilian real, Russian rouble and South African rand) have all halved their value over 5 years.. Of the G10, second best is the pound, down 10%, while the Norwegian Krone has lost almost a third of tis value and this year's star, the yen, has lost over 25%. But over the last year, things have mostly been quiet. Sure, the yen has rallied a lot, up by nearly 17% y/y, as it recovers ground lost in the Abe era. But EUR/USD is within 1% of where it was a year ago, a year during which it has averaged 1.11, and meandered pretty aimlessly between 1.05 and 1.17. I don't think USD/JPY will move as much in the next year as it did so far ion 2016, and I doubt that EUR/USD will get outside the range of the last year in the next one, either.

The dollar rally was initially powered by the commodity bubble bursting (.there's a chicken and an egg question here, but the death of the China-inspired commodity bubble was both a result of and a reason for the dollar's rebound from late 2011 onwards). Broad measure of commodity prices troughed in early 2016 and the dollar got some help from rising US real interest rates and also from a weaker yen (as Abenomics dragged it down) and then from the ECB's introduction of a QE/negative rate cocktail last year. But if the ECB is (almost) out of ammunition, Abenomics 2.0 is all about fiscal rather than monetary policy and the Fed isn't doing anything to rive real yields higher, what's left to support the dollar?"