The dollar continued to be strong on Thursday (14th), once rising to 109, and then the gains converged. The market expects that the dollar will continue to strengthen, and investors should not try to fight against the strong dollar.
George Boubouras, head of research at Melbourne-based hedge fund K2 Asset Management, said that now is not the right time to fight against a stronger dollar, with recession risks in developed markets still not abating, and shorting the dollar should not be done in the short term.
In addition to the safe-haven fund, Bank of America and Citigroup also expect the dollar’s strength to continue. Bank of America strategist Adarsh Sinha said in a note that the earliest turning point that can be predicted is in the fourth quarter of this year, and until then, the path of dollar strength remains.
Citi strategists including Jamie Fahy also said in a report that the dollar will remain the king of currencies until the Federal Reserve turns dovish or expectations for slowing global growth bottom out.
Investors remain bullish on the U.S. dollar index, with bullish bets currently around $16 billion, according to data from the Commodity Futures and Trading Commission (CFTC).
Forex.com’s market analyst Fawad Razaqzada has said that in the next few months, the dollar index is expected to fall in the strong range of 100 to 105, and the chances of a sharp decline are not high, because other central banks are not as hawkish as the Fed.
The U.S. dollar usually strengthens when a recession looms, but Goldman Sachs believes that the dollar is currently overvalued by about 18%, citing historical data to suggest that once the economy does fall into a recession, the dollar’s movements may be more difficult to predict.
For U.S. companies doing business overseas, a stronger dollar can lead to foreign exchange losses that erode profits and will show up in future earnings data. A whopping 41% of S&P 500 revenue comes from outside the U.S., according to FactSet.