Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

U.S. dollar's woes are only beginning, some bears say

EconomyAug 31, 2020 02:30PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - There are dollar bears, and then there's Ulf Lindahl.

The chief investment officer of currency manager A.G. Bisset believes the U.S. currency will plunge 36% against the euro over the next year or so, taking it to levels it has not seen in more than a decade.

The greenback's recent weakness "is the beginning of a very large move" that could hurt the droves of investors exposed to it through their holdings in U.S. stocks and bonds, Lindahl said.

Wall Street is swarming with bearish dollar forecasts, though few are as extreme as Lindahl's. The U.S. currency is near its lowest level in 27 months and is down about 11% from its 2020 peak against a basket of its peers, with Goldman Sachs (NYSE:GS), UBS and Societe Generale (OTC:SCGLY) among the banks forecasting more 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 (NYSE:BAC) Global Research survey named shorting the dollar as their top currency trade for the second half of the year.

For a graU.S. Dollar Index & CFTC speculative currency positions

Getting the dollar right is key for investors, as its trajectory sways everything from corporate earnings to the prices of raw materials such as oil and gold.

Lindahl's research breaks down the dollar's fluctuations over the decades into 15-year cycles that show the greenback weakening sharply against the euro before recovering most of the losses.

Though the dollar's drop has slowed in recent weeks, that's "really an opportunity to get out of the dollar," he said.

Most bearish investors expect the dollar to depreciate on the back of stronger economic growth prospects outside the United States, rock-bottom U.S. interest rates, and concerns that programs to allay the coronavirus pandemic's economic fallout are inflating fiscal deficits.

For a graphic on Gap between U.S. and German 10-year government bond yields:

Goldman Sachs, for instance, believes a steadily improving global economy and negative real rates in the United States are a "sustained recipe for dollar weakness," and forecasts the euro to trade at $1.30 by 2023, from the current $1.196.

Analysts at TD Securities said the Federal Reserve’s revamped 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 because of ongoing compression in interest rate and growth differentials, said Jeroen Blokland, a portfolio manager at the Netherlands-based company.

A declining dollar can have a benign impact on markets, as it loosens financial conditions, boosts profits for U.S. exporters and makes it easier for countries to service dollar-denominated debt.

U.S. investors holding foreign assets are also less apt to buy protection against dollar spikes when the currency is expected to remain weak, potentially increasing the profitability of their trades.

"My portfolio at this moment is unhedged," said Lei Wang, portfolio manager at Thornburg Investment Management. "(I'm) completely riding this strong other currency-weaker U.S. dollar phenomenon."

At the same time, a prolonged dollar decline could send a more ominous signal, reflecting doubts about U.S. finances and economic growth, as well as a potential weakening of the dollar’s position as the world’s dominant currency.

Nearly half the respondents in the BofA survey said they expect global U.S. dollar reserves to decrease during the next year.

"There's a lot of speculation these days that the dollar will crash and lose its prominence as the global reserve currency," said Michael Gayed, portfolio manager at Toroso Investments/ATAC Rotation Fund.

Others believe a reversal of risk appetite or better news on the U.S. economy could provide support for the dollar.

Rick Rieder, BlackRock (NYSE:BLK)'s global chief investment officer of fixed income, expects the dollar to decline only modestly. The world's dependence on the greenback for trade and commerce will likely prevent a crash for the U.S. currency, he said.

U.S. dollar's woes are only beginning, some bears say

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email