Speculative traders, including hedge funds and asset managers, are the most bullish on the greenback since 2019. — Reuters
NEW YORK: Wall Street is forecasting even more gains in the US dollar as a resilient US economy and dwindling expectations for interest-rate cuts coincide with incoming President Donald Trump’s vows for harsh tariffs.
Goldman Sachs Group Inc, TD Securities and Deutsche Bank are among the big banks whose currency strategists expect the greenback to strengthen even more this year.
The Bloomberg Dollar Spot Index rose yesterday for a fifth-straight session. Speculative traders, including hedge funds and asset managers, are the most bullish on the greenback since 2019, increasing aggregate bullish bets on the dollar to some US$33.7bil, according to Commodity Futures Trading Commission data.
“We believe the dollar will stay on top,” said Helen Given, a foreign-exchange trader at Monex.
“If we are to see a move for the dollar index through the November 2022 level, it would likely come either right before or right after Trump’s inauguration.”
The dollar gauge is just 2.8% away from testing its 2022 peak. Already, the cost to hedge against a further rally in the dollar over the next year has risen to the highest in nearly two years.
The rally has been driven by Trump’s tariff plans and the Federal Reserve (Fed) signalling it may be taking a more measured approach to cutting rates.
A strong jobs report last Friday led JPMorgan Chase & Co and other major Wall Street banks to pare back their rate cut predictions for this year.
Traders are increasingly bullish on the dollar even as the US currency trades at historically expensive valuations.
Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US Inc, and TD Securities’ strategists expect the dollar to retest 2022 highs.
Strategists led by Kamakshya Trivedi at Goldman revised their dollar forecasts higher – the second time in about two months – now calling for the greenback to rally 5% over the coming year.
Meanwhile, Deutsche Bank’s strategists led by George Saravelos, expect the euro to fall below parity.
The strategists except it to trade in a range between 95 US cents and US$1.05 against the dollar this year, driven in large part by a widening gap in policy expectations for the Fed and European Central Bank.
The euro has fallen to a fresh two-year low below the 1.02 mark, sterling – beset by financial woes in the United Kingdom – traded at its weakest since November 2023, and Australia’s dollar traded at its lowest since the early pandemic.
Deutsche Bank also recommends buying dollar-yen as the pair reaches 160 from the current level of about 157 even in anticipation of the Bank of Japan raising its rates. It is not clear if the rate hikes are going to help the yen, Saravelos and others wrote in a note.
“With tariff worries adding uncertainty about global growth and inflation, the Fed is likely to respond by moving to pause rates leading to widening interest rate differentials that favour the dollar,” said Amundi’s Upadhyaya.
Trump has recently reiterated that he will not scale back his tariff plans and a CNN report said he mulls declaring a national economic emergency to provide legal ground for universal tariffs.
These comments will continue to affect markets as traders await more details on tariffs. — Bloomberg
