The chief investment officer of currency manager AG Bisset estimates that the US dollar will plunge 36% against the euro over the next year, raising it to levels it has not seen for more than a decade.
The greenback’s recent weakness “is the start of a very big move” that could hurt crowds of investors exposed to it through their holdings of US stocks and bonds, Lindahl said.
Wall Street is teeming with bearish dollar forecasts, though few are as extreme as Lindahl’s. The US currency is near its lowest level in 27 months and is down about 11% from its 2020 high against a basket of its peers, Goldman Sachs, UBS and Societe Generale among banks planning more of losses. = USD
Hedge fund bets against the dollar in futures markets are at their highest level in about a decade, according to data from the Commodity Futures Trading Commission, while 36% of fund managers in a recent Bank of America survey Global Research have named the dollar shorting as their top currency trade for the second half of the year.
For a graU.S. Speculative positions on the dollar index and the CFTC
Getting the right dollar is essential for investors, as its trajectory swings everything from corporate earnings to commodity prices such as oil and gold.
Lindahl’s research breaks down the dollar’s fluctuations over decades into 15-year cycles that show the greenback weakens sharply against the euro before recouping most of the losses.
Although the decline in the dollar has slowed in recent weeks, it is “really an opportunity to get out of the dollar,” he said.
Most bearish investors expect the dollar to depreciate due to stronger economic growth prospects outside the United States, lower U.S. interest rates, and fears that programs to mitigate Economic fallout from the coronavirus pandemic is inflating budget deficits.
For a chart on the spread between US and German 10-year government bond yields:
Goldman Sachs, for example, believes a constantly improving global economy and negative real rates in the United States are a “lasting recipe for dollar weakness”, and predicts the euro will trade at $ 1.30. by 2023, up from the current $ 1.196.
TD Securities analysts said the Federal Reserve’s new policy approach to inflation will keep the dollar under pressure as it suggests interest rates will stay lower for longer. The greenback is about 10% overvalued against other major currencies, they said.
Robeco, a $ 174 billion asset manager, believes the dollar will lose ground due to continued interest rate compression and growth spreads, said Jeroen Blokland, portfolio manager of the US-based company. Netherlands.
A falling dollar can have a mild impact on markets, as it eases financial conditions, increases profits for U.S. exporters, and makes it easier for countries to service dollar-denominated debt.
U.S. investors with foreign assets are also less inclined to purchase dollar surge protection when the currency is expected to remain weak, potentially increasing the profitability of their transactions.
“Right now my portfolio is not hedged,” said Lei Wang, portfolio manager at Thornburg Investment Management. “(I) completely ride this powerful other weaker US dollar phenomenon.”
At the same time, a prolonged decline in the dollar could send a more worrying signal, reflecting doubts about the finances and economic growth of the United States, as well as a potential weakening of the dollar’s position as the world’s dominant currency. .
Almost half of respondents to the BofA survey said they expected global US dollar reserves to decline over the next year.
“There is a lot of speculation these days that the dollar will collapse and lose its importance as a global reserve currency,” said Michael Gayed, portfolio manager at Toroso Investments / ATAC Rotation Fund.
Others believe that a reversal in risk appetite or better news on the US economy could support the dollar.
Rick Rieder, director of global fixed income investments at BlackRock, expects the dollar to decline only modestly. The world’s dependence on the greenback for trade and commerce will likely prevent a crash of the US currency, he said.
Reporting by Saqib Iqbal Ahmed; Edited by Ira Iosebashvili and Paul Simao
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