Global markets are at an inflection point and the focus is about to shift from crisis in the euro zone to a crisis in the United States according to David Bloom, the global head foreign exchange strategy at HSBC.
“In our view, it is time to stop worrying about the euro and to start worrying about the dollar,” said Bloom in an interview with CNBC’s European Closing Bell.
"The combination of looser U.S. monetary policy and the fiscal cliff is moving the crisis away from the euro zone and towards the U.S. The further loosening of monetary policy should induce a ‘risk-on’ market environment — which is dollar negative.”
The Federal Reserve is widely expected to be set to unleash another round of quantitative easing (QE) when it meets next week, and when added to fears over the fiscal cliff, Bloom predicts the focus will return to structural problems in the U.S. market.
“This is a world of rotating sovereign risk and further QE, the election, and the impending fiscal cliff is seeing the FX market shift its focus away from the euro towards the dollar,” said Bloom ahead of a crucial European Central Bank meeting that is expected to see Mario Draghi announce plans to buy up short-term debt to help Spain and Italy.
With the world’s two most important central banks pumping cash into the system Bloom believes the risk-on environment will see investors buy euros, not dollars.
Instead of eyeing Greece, Spain and Italy investors should be focused America’s huge government borrowing.
“Beyond the Fed move, problems over dealing with the looming fiscal cliff could also focus attention back on U.S. structural problems that have not received close attention while the markets have focussed on the European sovereign debt problems,” said Bloom.