Three 'Ugly Sisters' Will Keep Rates Low: Forex Expert
Interest rates in the United States, the euro zone and Britain are going to be left at a record low for a while, despite various noises made by central bankers, David Bloom, head of foreign exchange research at HSBC, told CNBC Monday.
St. Louis Federal Reserve Bank President James Bullard, a voting member of the Fed's rate-setting panel, said that inflation is contained now but could become a risk in the mid-term due to the large budget deficit and the loose monetary policy.
Europe's woes have not delayed the Fed's moves on interest rates, Bullard added.
But this is just tough talking, as the markets do not believe any interest rates in the big economies are imminent, according to Bloom.
"For the foreseeable future, we won't see interest rates raising in the three 'ugly sisters': the US, the UK and the euro zone," he said.
European Union President Herman Van Rompuy told the Financial Times that the strong euro had masked the euro zone's debt problems, which are now coming to the fore.
But the same situation is now taking shape in the US, where the dollar strength "is disguising the idea that the US could have a second fiscal stimulus package," Bloom said.
"The financial market is the only thing to exact some discipline on these politicians," he said.
The weaker euro will give a boost to the euro zone's economy, once the negative side of the depreciation – markets' reluctance to buy euro zone bonds at lower yields – is out of the way, he predicted.
"What's amazing is that everybody wants a weaker currency, but when Europe gets it, it's a crisis," Bloom said. "The Europeans are hanging their dirty laundry out in public, everybody can see it, they're very transparent."
Once the issue of contagion from the Greek crisis is resolved, the euro zone will be out of the woods, in Bloom's opinion.
He admitted that his prediction regarding the euro's move was wrong.
"I missed this move, I can't pretend my forecast was $1.20, I started the year with $1.45." He said he then downgraded it to $1.35, which was still too high."I've been wrong," Bloom said.
- Watch the first section of David Bloom's interview above and the second part here >>>.
However, he does not predict the disappearance of the single European currency. The dollar is still the reserve currency but investors want to diversify, he explained.
"At the end of the day, it's about reserve diversification, that will continue," Bloom said.
"I think this Anglo-Saxon dream that the euro will disappear is pure fantasy," he added.
Last year investors didn't want dollars, the year before they didn't want the pound and now they don't want the euro, Bloom pointed out.
"It's not that I have faith in a single currency, it's just that I don't have faith in any others," he said. "It's a rotating market and you cannot fall in love with any currency because they will fall out of favor."