Bloomberg interviewed Moneta CIO Aoifinn Devitt on live TV, asking her whether or not the recent slump of the US dollar has made the asset no longer investable.
The conversation touched on the impact of COVID and Omicron on global economies and currencies.
You can watch the full interview here.
The full transcript from the interview is posted below.
Axil Steel: Has the buck stopped here? joining us now is Aoifinn Devitt, Moneta’s Chief Investment Officer. Aoifinn, has the buck stopped here?
Aoifinn Devitt: I don’t think it is. We have to remember that currency is a zero-sum game. So, what will the dollar fall against? What are the other currencies that there’s positive momentum surrounding and for whom there is less uncertainty around COVID and the emergence from it than for the dollar? I can’t see the currency that is really an obvious trade at this moment. So, I think it may certainly level out. We may see some of that choppiness come off it, but I don’t see it stopping here.
Guy Johnson: So, is this just positioning unwinding? Did we just get a little bit long here, Aoifinn?
Aoifinn Devitt: I think so, clearly, that the dollar was a currency of last resort. We saw that the US was very much the engine of global economic recovery. The equity market has far outstripped any other developed market – any other emerging market. And clearly there is a sense of a desire to rebalance and maybe wishful thinking that some of that underperformance is going to revert to the mean.
Axil Steel: On a broad level, if we wrap in, say, Omicron as well, if we wind up sort of reopening here, as we’re seeing in Europe with Delta – and I mentioned this in the last segment – is that sort of a shift to other currencies? Moving money broadly out of the dollar out of US equities and into other areas.
Aoifinn Devitt: I think if there is a shift, it will very much be at the margin. It will be opportunistic, because there will be a sense that some of these currencies have languished. But look, the British pound, for example, really hasn’t performed very well. The Euro has languished. I personally think that these central banks are likely to be far behind the Fed. And that will actually be a fundamental technical factor driving support for the dollar. I don’t see really a dramatic decline from here.
Guy Johnson: Aoifinn, is there a signal in what is happening, though, around the dollar? Other asset classes seem remarkably comfortable with where the Fed is going. Three hikes this year – everybody seems on board with that as a concept. But is the dollar sending a signal that that is going to be really hard to achieve, or, that maybe actually delivering a soft landing for the US economy – bringing inflation down while not crashing the economy – is going to be tougher than people think.
Aoifinn Devitt: I’m not reading much into that signal at all. I think it’s purely technical. It’s really profit taking at year end, and – as I mentioned – wishful thinking. What is surprising – and you mentioned it before – is just how calmly markets are taking this indicated action by the Fed. Clearly, it’s been well telegraphed. I think we have to remember that no matter what, this is still getting us to very low interest rates historically, even if we do have four rate rises in ’22.
Axil Steel: So, then it really begs the question, have markets rerated enough in terms of the equity market to justify current valuation? So, Goldman Sachs weighed in on that point, saying that only a modest further move in longer term yield is now expected. This means limited further risk to growth, stock valuations from the discount rate. We’ve seen the move, go ahead, growth might look attractive. What do you think?
Aoifinn Devitt: Yeah, I would agree with that. Clearly, growth stocks are where investors want to back right now. There has been a huge desire to sponsor the disruption trade and to buy that and any technical effect of higher rates. I think that has washed through very quickly and people are back on the bandwagon. We just have to look at equity market flows to see where the demand is. And that’s why any of these corrections and markets have been very short lived.
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