Standard Chartered: Kevin Warsh May Have Created a Barrier to Selling the Dollar

Standard Chartered said Federal Reserve Chair Kevin Warsh may have removed the biggest obstacle to buying the dollar while creating the biggest obstacle to selling it. According to Sina Finance, Steve Englander, global head of G10 FX research at Standard Chartered, wrote in a September 17 client note that the biggest previous barrier to buying the dollar was concern about currency depreciation. Englander added that the biggest barrier to selling the dollar is that nominal and real interest-rate differentials make the dollar unattractive as a funding currency, leaving hedging costs high for holders of dollar assets. He said Warsh may have reduced resistance to a near-term dollar rally because the Federal Open Market Committee raised rates by 25 basis points, making the market more comfortable chasing higher yields and increasing hedging costs. He said the dollar's biggest current risk is a weaker outlook for U.S. economic growth.