INSUBCONTINENT EXCLUSIVE:
By Lananh NguyenWhen a nation’s central bank raises interest rates, it’s often a bullish sign for the currency
Not so in the U.S., where expectations for a Federal Reserve rate hike next week are flashing sell signals for the dollar.
BNP Paribas Asset
Management says the broad greenback could plunge 10 percent in the next six to nine months, while Invesco Ltd
forecasts it’ll sink about 3 percent against the euro by year-end
Both firms are watching the Fed’s Sept
26 decision for any comments on the impact of escalating trade tensions
The two companies also see the currency sliding as other central banks inch closer to monetary tightening.
“We have a turning point where
the dollar is going to weaken’’ said Momtchil Pojarliev, deputy head of the currencies team at BNP Paribas Asset Management, which
The dollar is “at the maximum positive point” and could weaken to $1.25 per euro in the next six to nine months from around $1.17 in
It’s also a good time to short the U.S
currency against the yen, Pojarliev said.
The market views a 25 basis point Fed rate hike next week as a near certainty, based on fed fund
Contracts on Wednesday showed more than 45 basis points of total tightening by the end of 2018
Focus is increasingly shifting to the outlook for next year, with investors moving closer to the central bank’s projected path of three
rate hikes for 2019.
That won’t be enough to prop up the greenback, according to Noelle Corum, an Atlanta-based portfolio manager in
Invesco Ltd.’s fixed-income group
As global growth improves and market participants start to speculate about policy changes from the European Central Bank and Bank of Japan,
the dollar’s support from Fed hikes and trade tensions will wear off, she said.
“Going into year-end, we would expect fundamentals will
begin to drive markets again, and this will drive the dollar weaker,’’ said Corum, whose group manages $235 billion
She forecasts the greenback will depreciate to $1.20 per euro and weaken to 104 yen per dollar by year-end.
The U.S
currency has risen more than 5 percent since mid-April, bolstered by a robust economy, gradual tightening by the Fed and haven flows as
investors sought refuge from escalating trade tensions
That’s been painful for investors who began the year with a bearish mentality following a 8.5 percent decline in 2017.
As the dollar
started to gain steam this year, speculators piled into bullish bets
Long-dollar wagers are now the third-most crowded trade in financial markets, according to fund managers surveyed by Bank of America Merrill
And yet, prominent investors including Ray Dalio, who founded the world’s biggest hedge fund at Bridgewater Associates, and Jeffrey
Gundlach, chief investment officer at DoubleLine Capital, are turning bearish alongside some Wall Street strategists.
“The Fed needs to be
taken in the context of other themes like trade,” said Mark McCormick, North American head of FX strategy at Toronto-Dominion Bank
“The market anticipates a hike and there is more room to fade the USD as positioning looks well-populated.”
