Dollar 'Going to Get Slapped' Because of Debt Deal: Bloom
Associate Editor, CNBC
The dollar will face months of weakness in the run up to the U.S elections next year, David Bloom, global head of foreign exchange strategy, HSBC told CNBC Tuesday
"This is not good for the dollar, it's going to get slapped every day for the next fifteen months. In the short term there is some relief going on but long term we can see that US politics really does not bode well for the future," Bloom said.
"We have a presidential election in fifteen months and if the economy slows further there's no chance of a fiscal package you start looking to the Fed and you start thinking about QE3 (a third round of quantitative easing )," he said.
The fractious negotiations between Republicans and Democrats in an attempt to thrash out a deal to raise the U.S borrowing limit, which was approved by the House of Representatives Monday, exposed the dangers of the U.S. political situation. Rating agencies including Standard & Poor's and Moody's have warned that the debt ceiling crisis could lead to either a loss of the U.S' triple-A credit rating and or a negative outlook, which could threaten the position of the US dollar as the world's reserve currency.
Bloom argued that he, like other investors was unsure about where to invest as debt crises lurched from one region to another.
"I feel totally fatigued going from one crisis to another, but it's still not over and the big question is what do you buy?" he said.
"It's an ugly contest, you sell bonds, you buy something else, you sell equities, you buy something else. This is the problem people have got: they don't want their uglies the dollar, the euro, sterling so I think the yen is what is left. But I still like Sweden and Norway, these are still promising currencies," he said.
Bloom said the seemingly endless rounds of meetings and inaction in Europe fed the crisis further instead of resolving it.
"Everyone's having meetings, you need action not meetings. The problem with Italy is that it's a big one, it's 9 or 10 times the size of Greece. It's the size of the UK economy so we can't have Italy in trouble this it isn't an Ireland and it isn't a Greece," he said.