After rallying over 5% since June, there are indications that the US dollar's robust momentum might be waning. Key market players, including strategists at Barclays Plc, Morgan Stanley (MS), and National Australia Bank, are sounding alarms about over-extended bets on the greenback. While options positioning reveals a diminishing appetite for fresh dollar stances, measures of currency volatility suggest the smallest anticipated shifts in 18 months. Despite the US Treasury yields reaching their highest in over a decade recently, the dollar has struggled to find the energy to ascend further.
Themistoklis Fiotakis of Barclays (BCS) in London voiced skepticism, suggesting a forthcoming "big dollar let-down." Historically, the dollar has shown resilience against various downturn predictions, often bouncing back with even greater vigor. Factors like geopolitical unrest in the Middle East and the Bank of Japan's recent policy choices have sporadically spurred demand for the currency. However, recent data from an MLIV Pulse survey indicates that the peak of enthusiasm for the dollar might have been in September.
Analysts are expressing concerns overcrowded bets on the dollar. Rodrigo Catril of National Australia Bank underscores that the currency's inability to capitalize on traditionally positive drivers implies the rally from mid-July to early October might have reached its zenith. Other indicators, such as JPMorgan Chase (JPM) measure of implied currency volatility, align with this perspective, suggesting the market does not foresee any significant dollar fluctuations in the foreseeable future. While the US dollar continues to be the primary choice for many, especially given the relatively resilient US economy, Johanna Kyrklund of Schroder Investment Management Ltd. comments on the lack of a credible alternative.
Historical trends further challenge the dollar's ascendancy. Over the past ten years, the Bloomberg Dollar Spot Index surpassed the 1,280 level only twice for more than a handful of days. Strategists at Morgan Stanley recently advised clients to reconsider their long dollar positions, pointing out that many of the dollar's positive triggers, such as higher yields and a more robust US economy in comparison to the global scenario, have already been factored in. Gareth Berry of Macquarie Group holds that while the dollar might experience a brief resurgence, evolving interest rates and other factors indicate that time might not favor its long-term strength.
