With America’s high current account deficit not showing much improvement. the dollar’s recent rally seemed to be based on the greenback being oversold rather than improved fundamentals. Historically, countries that run current account deficits in excess of 4% of GDP suffer depreciation of the value of their currency, and the US is still well above that level.
Futures traders doubled bets against the greenback in the past two months, data from the Commodity Futures Trading Commission in Washington show. Citigroup Inc., Deutsche Bank AG and Royal Bank of Scotland Group Plc, which handle almost 40 percent of global foreign exchange trading, say the currency may slump to $1.65 per euro by October, from $1.5672 today…..
“The dollar will continue to move lower in the next couple of months until the U.S. economy improves markedly,” said Adam Boyton, senior currency strategist in New York at Deutsche Bank…
Futures traders have grown more bearish, as three Fed interest rate cuts in 2008 totaling 2 percentage points reduced demand for U.S. deposits. They amassed a net total of 246,101 futures contracts betting on a dollar decline versus eight other currencies, up from 126,342 on Jan. 22, CFTC data show…..
“We are close to a tipping point where, I mean, the willingness to hold dollars is definitely impaired,” billionaire George Soros, 77, said in an interview in New York on April 3. His bet against the British pound in 1992 helped drive the U.K. out of Europe’s system of linked exchange rates.
Foreign private investors sold a net $37.6 billion of U.S. stocks and bonds in the six months ended Jan. 31, the most recent Treasury Department data show. The last time sales exceeded purchases over a six-month period was April 1996….
The U.S. currency received a reprieve last week. The dollar rose 0.4 percent against the euro and 2.2 percent to 101.47 yen as the recapitalization plans by UBS and Lehman Brothers boosted investor confidence in financial institutions shaken by $232 billion of losses and writedowns from the freeze in capital markets.
“The dollar is bottoming out,” said Benedikt Germanier, a currency analyst in Stamford, Connecticut, at UBS, the second- biggest currency trader after Deutsche Bank. It may rise to $1.45 per euro by June, he said.
The median of 41 estimates in a Bloomberg News survey is for the dollar to appreciate to $1.51 per euro by Sept. 30 and to $1.48 at year-end as the U.S. economy recovers and Europe slows.
“The U.S. economy is deteriorating so fast that it’s hard to believe economies outside of the U.S. won’t get affected,” said Tom Fitzpatrick, global head of currency strategy at Citigroup in New York. “As the slowdown in the U.S. reverberates to Europe, the ECB can’t be sitting this one out. They have to cut,” which may limit dollar losses, he said.
Analysts have predicted a rebound before only to be proven wrong. At the start of 2008, they expected the dollar to gain to $1.48 per euro by June and reach 110 yen, according to Bloomberg surveys. They now see it at $1.55 to the euro and 98 yen….
“For verbal intervention or actual intervention to work you need some substantive policy behind it and the last thing you will see right now is a monetary tightening by the Fed,” said Robert Sinche, head of global currency strategy at Bank of America. He expects the dollar may fall past $1.60 per euro this quarter.