Is the US Dollar’s Slump Set to End?
By Money Morning
You may have seen the repeated calls for the US Dollar to collapse. But Bloomberg News notes, ‘The best currency forecasters say the U.S. dollar’s 12% slide will end’.
All but one currency forecaster surveyed by Bloomberg believes this.
Bloomberg goes on, the ‘…deepening European debt crisis discourages bets against the world’s reserve currency’.
Have a quick look at the chart below. The past year has been one long slippery-dip ride for the American currency:
Source: TradingEconomics.com
This chart is the US Dollar Index (DXY). It measures the performance of the greenback against a basket of currencies. It includes the Euro, Japanese Yen, British Pound Sterling, the Canadian dollar, Swiss Franc, and Swedish Krona.
As you can see, the Dollar’s slide hasn’t been pretty.
However, Stephen Gallo, head of market analysis at Schneider in London, shared his bullish forecast for the U.S. dollar. He said, ‘There’s not a lot of room left for it to weaken beyond the $1.50 to the Euro, and we still see it recovering to about $1.40 by year end’.
One look at the chart below tells you the U.S. dollar has some way to go to reach his forecast:
Source: Yahoo.com.au
Last week, the US dollar rallied 1.8% against the Euro. Eurozone problems helped this. As with any quick rally, spectators are quick to point out the ‘safe haven’ of the greenback.
Richard Grace, chief currency strategist of international economics at the Commonwealth Bank believes ‘…the U.S. dollar is bouncing along the bottom’.
And he’s not alone with this view. Of the top five currencies forecasters, only one had a bearish view on the Dollar. Kit Juckles head of foreign exchange research at Societe Generale said:
‘The U.S. favours a weaker currency as part of its economic solution and with employment well below where they want it to be, the Fed will keep rates lower for longer.’
He added, ‘I’m negative the U.S. dollar.’
He thinks the dollar will ‘slide’ to $1.52 per Euro by the end of the year.
So, if there’s only one negative opinion out of 50 for the U.S. dollar, does that mean the majority of forecasters are right?
It’s hard to say. The Fed’s monetary policy isn’t doing the greenback any favours. But as long as the U.S. dollar is seen as a haven for investors there will be a demand for it and that could push the U.S. dollar higher.
But whatever happens, the US Dollar Index will be a key chart to watch over the coming months.
Shae Smith
Editor, Money Morning
