Has lost 11% of March highs – One in three fund managers consider sorting out the dollar as the top investment option by the end of the year
Last March, the US currency soared as fears of the coronavirus and the recession drove investors from around the world to the “green currency” which is considered the classic safe haven.
In the summer, however, the situation reversed and the dollar plunged sharply, reaching 11% lower than the March high and close to its lowest level in the last 27 months.
The market is flooded with negative forecasts for the future of the US currency, while about one in three fund managers considers the “sorting” of the dollar as their top investment choice until the end of the year (predict a fall and therefore sell dollars to repurchase them cheaper).
Ulf Lindahl, head of the American currency investment firm A.G. Bisset, which according to Reuters predicts that the dollar will fall by 36% against the euro within a year or so, reaching decade lows. Lindal’s analysis is based on 15-year cycles in which the US currency plummets sharply before regaining ground.
But most international investment banks and companies are predicting a fall for the dollar, albeit more modestly.
Goldman Sachs predicts that the price of the eurodollar will reach 1.30 by 2023, from 1.19 today.
Others, such as the head of investment at Blackrock, expect only a small decline, as he estimates that global trade dependence on the dollar will prevent a major decline.
The downward trend in the US currency is mainly fueled by the major problems in the US economy caused by the outbreak of the coronavirus pandemic and the failure of the government to effectively manage the problem compared to other countries.
At the same time, the EU’s decision on the Recovery Fund with the “dowry” of EUR 750 billion was adopted by the European Investment Bank (EIB). This strengthens the prospects for the recovery of the European economy and, therefore, of the euro.
The downward trend reinforces the measures taken by the authorities to deal with the economic impact of Covid-19 and in this area, it was crucial to change the Federal Reserve (Fed) in relation to inflation, announced last week. The Fed president has announced that the inflation target is changing and the latter will be able to move above the 2% threshold so far. This in practice means that interest rates will stay low for a long time, which favours a lower exchange rate of the currency.
The fall in the dollar has traditionally strengthened the US stock market, which, like almost all stock markets worldwide, has had a big rally, recording exceptional yields in August – which was the best month for stock markets since the 1980s. The retreat of the currency favours exporting companies (such as technology companies in particular), while US equities are becoming cheaper for investors than External. It is estimated that by the end of the year, about $ 300 billion will have been invested from abroad in the US equities.
On the other hand, if the downward trend in the dollar is maintained for a long time and strengthened, it will probably give a “signal” for fundamental, worrying imbalances in the US economy .