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The astonishingly durable dollar rally and expectations of strong US growth are rising investments around the world, punishing commodities and emerging markets while attracting more money from abroad [19659002] that a temporary rebound during a bear market emerging. Signs that economic growth has resumed in Europe and other major economies have beaten the US currency last year and the first quarter.
But as growth abroad has slowed and the Federal Reserve has taken a more aggressive stance on interest rates The WSJ dollar index, which measures the currency against a basket of 16 others, grew by 5.1% in the second quarter for its first quarterly gain since 2016.
Many observers believe the recovery looks set to continue as markets head for the second half of the year. 39; year.
"The Dollar Has Been Totally Ransacked"
Said Haidar,
The boss of Haidar Capital Management, based in New York, which ended its bets against the US currency in May and who now bets on currencies such as the Polish zloty and the Hungarian forint. "It took us a little off guard."
Hedge funds and other short-term investors turned to the dollar for the first time in a year, according to data from the Commodity Futures Trading Commission. This positioning has helped raise the dollar to its highest level since July 2017.
As the dollar is the world's largest currency, any significant change in its value and future outlook may have repercussions on the dollar. financial markets
. Stocks and bonds accounted in June for nearly 60% of global investment portfolios, according to the Institute of International Finance. This was the highest allocation for US markets since the beginning of 2017, reflecting increased confidence among investors that robust growth in the United States will continue.
Justin Bourgette,
a portfolio manager at Eaton Vance reduced its exposure to emerging markets equities this spring. He used the money to buy small and mid-cap US stocks, which he says will benefit from the country's strong growth.
"China is slowing down, the eurozone is slowing down, but the US continues to make progress," Bourgette said.
Yet the rising dollar does not help all US investment, especially the major exporters. A strong currency makes US products less competitive abroad and reduces the profits of multinationals when they convert foreign revenues into dollars.
Coca Cola
Co.
, for example, said in a statement in June that it is now expecting a 2% to 3% headwind on its comparable operating result of 2018 due to a dollar stronger. Coke stocks are down nearly 10% from their peaks in February.
Investors are also turning to badets that could be suffering under a strong dollar, including gold and other commodities.
"I do not understand how someone hangs and imagines a story where the dollar goes down" Christopher Stanton, who manages $ 300 million as chief investment officer of Sunrise Capital Partners LLC in California.
He recently bet on lower prices for gold, silver and copper denominated in US dollars. foreign investors as the dollar strengthens
Net bulls on gold are at their lowest level since January 2016, reflecting a 5.4% decline in metals in the second quarter. Copper was down 2.3% over the same period, while cocoa fell by 1.7%. One of the few exceptions was oil, which reached its highest level in three years due to threats to global supply.
The sharp rise in the dollar is also exacerbating mbadive sales in emerging markets, making it difficult to service the debt of countries that have borrowed heavily in recent years. The currency declines of Argentina, Turkey, Mexico and South Africa have accelerated in recent weeks
Investors are increasingly badured of these bets because many believe the factors stimulating the dollar are likely to remain in effect. US economic expansion has strengthened, with some forecasters estimating that gross domestic product grew 5% in the second quarter. Europe's growth is moving in the opposite direction. In June, the European Central Bank lowered its growth expectations for the euro area this year from 2.4% to 2.1%
. Stanton at Sunrise Capital says rising expectations for the Fed to accelerate rate hikes will keep the dollar strong against currencies that are tied to more accommodative central banks, such as the euro and the Australian dollar. Higher rates make the dollar more attractive for investors looking for yield.
Trade tensions between the United States and China are also boosting the dollar, badysts said. Many investors think that the United States would be less affected than China or Europe if a full-fledged trade war breaks out.
The dollar will also be supported by companies that will bring in foreign funds to take advantage of a one-off budget cut. GOP tax recovery signed the law at the end of last year, said Bank of America Merrill Lynch. This process appears to be underway: the bank estimates that companies have repatriated $ 175 billion in the first quarter and could bring in up to $ 450 billion.
Not everyone expects the dollar's recovery to continue. Aaron Hurd, Senior Portfolio Manager at State Street, said he's looking to ease his dollar bets during the second half of the year. It anticipates a monetary tightening by global central banks to support the euro and other currencies next year.
"If we do not see too much damage from this commercial skirmish, maybe global growth will resume." ] Write to Ira Iosebashvili at [email protected]
