Inside Financial Markets

Dollar Drop Signals World’s Best Forecaster to Start Buying

U.S.-Dollar-ETF1Dollar Drop Signals World’s Best Forecaster to Start Buying

It’s time for investors who bailed on the dollar in the past few weeks to get back in, says the most-accurate currencies forecaster.

The greenback has tumbled 4.3 percent versus the euro since touching a 12-year high last month amid speculation the Federal Reserve will delay raising interest rates, in part because the dollar’s strength is hurting U.S. economic growth. That concern is overblown, according to ING Groep NV, which topped Bloomberg’s rankings of foreign-exchange analysts for the second quarter in a row.

“The market is now pricing in a very subdued pace of the tightening cycle — we disagree,” Petr Krpata, a foreign-exchange strategist at ING in London, said on April 1 by phone. “We just see the latest correction as a perfect opportunity to get into the trade again.”

Even with the recent reversal, the dollar has rallied between 3.6 percent and 30 percent against all of its major peers since mid-2014 as the Fed’s plans to raise interest rates attracted cash to the U.S., at the same time that central banks from Europe to Japan boosted their stimulus. That momentum halted when Fed officials cut their forecasts for rate increases last month and alluded to the currency’s drag on exports.

Export Effect

ING sees the Fed raising rates this year even after an April 3 report showed the U.S. added the fewest jobs last month since December 2013. That makes buying the dollar versus the euro the best play in currency markets, according to the Amsterdam-based bank, among one of the first to say the currency pair will achieve parity this year for the first time in more than a decade.

“The stronger dollar doesn’t necessarily have to change the U.S. economic prospect,” said Krpata, who helps compile ING’s forecasts along with London-based head of currency strategy, Chris Turner.

Exports account for only 14 percent of the American economy, according to World Bankdata. That’s the least among Group of 10 nations, and compares with 30 percent for Canada, 46 percent for Germany, and over 80 percent for the Netherlands and Belgium.

ING forecasts the dollar, which traded at $1.0924 per euro at 6 a.m. on Tuesday in London, to strengthen to parity by mid-year and reach 95 cents by Dec. 31. That’s more bullish than the median year-end estimate of $1.05 in a Bloomberg survey of 69 strategists and economists. It reached $1.0458 on March 16, the strongest since January 2003.

ECB Stimulus

While monetary authorities worldwide have slashed borrowing costs this year to revive growth, an unprecedented bond-purchasing program by the European Central Bank, amplified by negative interest rates, has made the single currency a prime selling target for investors.

ING topped Bloomberg’s rankings of foreign-exchange analysts for the four quarters ended March 31, after also leading the previous period.

The best forecasters in Bloomberg’s rankings were identified by averaging individual scores on margin of error, timing and directional accuracy across 13 currency pairs during the past four quarters.

Banks had to be ranked in at least eight of the pairs to qualify for the overall placing, with 60 succeeding. ING’s score of 60.98 compares with No. 2 Credit Suisse Group AG’s 60.71.

Rally ‘Done’

Saxo Bank A/S took third place, with a score of 60.58, and was the best forecaster for the euro-dollar pair after being the most bullish on the greenback at the beginning of the year.

Now, Saxo strategists say the rally may be exhausted following nine straight months of gains.

“Most of the move is done,” John Hardy, head of foreign-exchange strategy at Saxo Bank in Hellerup, Denmark, said in a April 4 telephone interview. “There could be some more in it, but increasingly it’s going to become a two-way trade.”

Credit Suisse is in ING’s camp and predicts the dollar will reach parity with the euro by the end of this year. The Zurich-based bank sees the Fed raising rates in June even as the job market cools.

“You need to see a lot of more these negative signs before the whole story changes,” Alvise Marino, an emerging-markets currency strategist at Credit Suisse in New York, said in a phone interview. The dollar will climb as “the main trading partners of the U.S. are all easing.”

Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)