USD About To Soar?

Dollar to Rise Most Since 1981, Best Predictor Says (Update3)

By Lukanyo Mnyanda and Anchalee Worrachate

June 29 (Bloomberg) -- Strategists who came closest to predicting the dollar’s value against the euro so far this year see it strengthening as much as 17 percent in the second half as the U.S. recovers from the recession faster than Europe.

CIBC World Markets Plc, Deutsche Bank AG, Bank of America Corp. and Wells Fargo & Co. estimate the U.S. currency will rise more than 4 percent by Dec. 31 after May ended with its steepest three-month fall since 2002. At the start of the year, all had second-quarter forecasts within a penny or two of the $1.4056- per-euro close on June 26, Bloomberg’s currency survey shows.

“I’m reasonably bullish on the dollar,” said Henrik Gullberg, a currency strategist in London at Frankfurt-based Deutsche Bank, which Euromoney Institutional Investor Plc ranks as the world’s biggest foreign-exchange trader. “If you look at the data over the past few weeks, it has been consistent with the situation where the U.S. is a quarter or two ahead” of the 16-country euro region in rebounding, he said.

At the start of the year, after 2008 closed with the euro worth $1.3971, Deutsche Bank said it would weaken to $1.40 by June 30, just shy of where it was two trading days before the quarter’s end. Now the bank predicts a 17.1 percent gain to $1.20 per euro by year’s end, which would be the greenback’s best two-quarter performance against the euro or a basket of predecessor currencies since 1981.

Emerging from Turmoil

Little changed so far in 2009, the dollar is down 5.7 percent this quarter to trade at $1.4046 as of 7:03 a.m. in New York. Against the yen, which has declined against all 16 major currencies tracked by Bloomberg this year, the dollar has gained 5.1 percent since Dec. 31 to 95.46 yen.

Pro-dollar predictions reflect signs that the U.S. economy is emerging from the worst turmoil since World War II. Orders for American-made durable goods unexpectedly jumped in May, the Commerce Department said June 24. Median forecasts in Bloomberg’s economist survey predict the U.S. will grow 1.9 percent next year after shrinking 2.7 percent in 2009 as the euro economy contracts 4.3 percent before expanding 0.5 percent.

The Federal Reserve on June 24 said that “the pace of economic contraction is slowing.” The Organization for Economic Cooperation and Development last week urged the European Central Bank to cut interest rates further to speed the recovery there.

“In Europe, there’s a lot of headwinds, so the bullish- dollar story is based on what’s going on elsewhere,” said Adam Fazio, a CIBC currency strategist in New York. “We are bullish dollar in the near term.” Toronto-based CIBC predicts a 4.1 percent increase in the next two quarters.

Wide Range

Forecasts for the currency are the most scattered in two years, with fourth-quarter predictions ranging from $1.16 to $1.55 per euro, Bloomberg data show. The median of 48 forecasts sees the year ending at $1.40, near the current level.

Aletti Gestielle SGR SpA, an asset-management unit of Italy’s Banca Popolare di Verona, had the same second-quarter prediction at the start of the year as Deutsche Bank and now is among the most bearish, seeing $1.52 per euro by Dec. 31.

“There’s a lot of disillusion about growth in the U.S.,” said Fabrizio Fiorini, who helps manage $12 billion for Aletti Gestielle in Milan. “The U.S. will suffer from high debt and low consumption for quarters to come.”

Market uncertainty is driving up foreign-exchange swings. Fluctuations in Group of Seven currencies have risen to more than double what they were in the year before the credit crunch started in mid-2007; the G7 Volatility Index closed at 14.4 percent on June 26.

Winning Streaks

In the past six quarters, just two forecasters in Bloomberg’s survey -- Danske Bank A/S in Copenhagen and Royal Bank of Canada’s London-based strategists -- were among the five most accurate half-year-hence dollar-euro prognosticators twice in a row. Only London-based HSBC Holdings Plc did so three straight times. The rankings are based on forecasts in Bloomberg’s database on each quarter’s first day.

Robert Minikin, a Standard Chartered Plc currency strategist in London, said forecasting is difficult because governments are committing record sums to battle the recession.

“There’s profound uncertainty about the impact of the non- conventional measures,” on foreign-exchange markets, Minikin said. “It’ll be difficult” for policy makers “to unwind what they’ve done,” he said. There will be “heavy downward pressure” pushing the dollar to $1.55 per euro by year-end, he added.

HSBC has gone from positive to negative on the currency following three straight quarters in the ranks of the most accurate. After foreseeing $1.25 per euro by this quarter’s end, HSBC predicts $1.50 by Dec. 31.

‘Vulnerable Position’

“The dollar is in a vulnerable position because of the quantitative-easing policy,” said Paul Mackel, a HSBC currency strategist in London.

The greenback fell against the euro from early 2002 until the economic crisis exploded in mid-2008, when it strengthened to a two-year peak of $1.2330 per euro on Oct. 28 as investors fled to the perceived safety of Treasuries. It’s been a rollercoaster since -- $1.4719 on Dec. 18, $1.2457 on March 4 and then an 11.4 percent decline as investors returned to riskier investments and pushed the Standard & Poor’s 500 Index up 29 percent.

The legal tender fell as much as 0.9 percent on June 26, after policy makers at the People’s Bank of China renewed calls for a new global currency “delinked from sovereign nations.” Despite such talk, investors aren’t deserting dollar assets. The Fed’s custodial holdings of Treasuries for foreigners rose to a record $1.96 trillion this month as central banks and others abroad bought $15.2 billion worth the week ended June 24.

‘Risk Rally’

The dollar rose today for the first time in three days against the euro after China said it will not alter its foreign- currency reserves suddenly. China’s “foreign exchange reserve policy is always quite stable,” central bank Governor Zhou Xiaochuan told reporters yesterday in Basel, Switzerland.

“The recovery is going to take time, and that puts pressure on the risk rally,” said Geoffrey Yu, a strategist in London at UBS AG, the second-biggest currency trader. Renewed demand for havens is “going to be dollar supportive,” he added, predicting it will strengthen to $1.30 per euro in three months. The currency will trade at $1.40 by the end of 2010, Ashley Davies, a UBS currency strategist in Singapore, wrote in a report today.

“You don’t have to bet on the recovery to be bullish on the dollar,” said Christoph Kind, who manages $20 billion as head of asset allocation in Frankfurt at Frankfurt-Trust Investment GmbH. “If the situation stays as bad as it is, the dollar is a safe haven. And if the economy turns the corner, the U.S. will be the first to get out of the recession. On that basis, the dollar looks like a good investment. We are buying the dollar against the yen and the euro.”

http://www.bloomberg.com/apps/news?pid=20670001&sid=aKbYIqVcfqio

 

What? What the heck is this guy looking at?

 

The article makes the assumption that the market will follow logic, not sentiment.

Europe is in shambles, and the US will likely come out of this first and in a much better position. But that does not match the sentiment of hating the dollar regardless of news. So until that changes, buy EUR/USD and sell everything that is America. It's popular.

 

6 months is a long time for many things to happen

 

CIBC world market, the worst financial broker in Canada, always with its erroneous claims, it is a joke/Troll in Canada anyway.

 

Anything is possible but it appears that hopes the Fed will be
able to drain liquidity from QE is just that.........false hope.

 

"Orders for American-made durable goods unexpectedly jumped in May, the Commerce Department"

The bolded word describes well the value of such forecasts...

 

I don't think we'll be seeing >83 unless we get a major equity sell-off..

 

Dollar index can easily reach 100 mark this year. But the reason for this is NOT US recovery. The reason is the second wave of deleveraging and deflation.

 

Sounds a lot like someone who got burned on dollar longs. Aren't you the guy who keep envisioning the collapse of Europe and especially the EUR? Maybe it ain't about the market hating everything that is America, maybe its about _you_ hating everything that doesn't prop the dollar...