US economy is clearly in a better position than the European one; GDP growth rate is higher. The Fed holds over 70% of all bonds issued, and monetary stimulus in our view continues to be deflationary. This favors the dollar against the euro. The composite PMIs for the US, eurozone and UK are converging - the June composite PMI in the US fell to 63.9, while the PMI for the eurozone increased to 59.2 and the PMI for the UK fell to 61.7. The US PMI is still consistent with very strong GDP growth. There have been some signs of declining inflationary pressures lately but the international freight rates continue to rise (Baltic Dry Index has rise 3.1% past week), that could be a sign that further temporary inflationary pressure is still to come.
