Bloomberg
New York
The surging dollar is on the verge of accelerating even more as investors shift their focus to the prospect of higher US interest rates from the catalyst provided by the European Central Bank’s bond-buying programme.
The greenback is rallying the most since the heart of the European financial crisis five years ago, gaining this week against most major counterparts, including climbing to a 12-year high versus the euro. Investors are speculating whether the Federal Reserve will drop a reference to “patience” in its guidance on rates at next week’s policy meeting, suggesting Federal Open Market Committee members may boost borrowing costs for the first time in almost a decade as soon as June.
“After all these years of extraordinary monetary accommodation, which prevented the dollar from trading its true strength, we see the coming normalization of US monetary policy, including at next week’s FOMC, as an important catalyst,” Robin Brooks, the New York-based chief currency strategist at Goldman Sachs Group, said in an e-mail on Friday.
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major counterparts, has rallied 5% to 1,222.12 in the past four weeks, the biggest advance since May 2010.
The 8.1% surge in the dollar gauge this year demonstrates how the US has become one of the few global hot spots for investors as Europe struggles to avoid deflation, a Chinese slowdown ripples across emerging markets, and falling commodity prices prompts nations including Canada and Australia to cut borrowing costs.
The ECB’s €60bn-a-month ($64bn) bond-buying programme, which started last week, has investors pouring cash into the US as yields evaporate in Europe.
Strategists are struggling to keep up with the pace of the euro’s decline against the dollar. The single currency slumped 3.2% last week to $1.0496, surpassing the median estimates for the end of the year, according to a Bloomberg survey.
Goldman Sachs on Friday brought forward its prediction for parity to the next six months, from the end of 2016 previously.
Hedge funds and other large speculators increased wagers on the US currency’s strength versus eight major peers to 435,439 contracts as of March 10, the biggest in a month, according to Commodity Futures Trading Commission data compiled by Bloomberg.
“Markets will continue on this one-way bet” on the dollar, said Alessio de Longis, a macro strategist at OppenheimerFunds, in an interview in New York. De Longis, whose division oversees $11.6bn, said the euro may decline to parity with the dollar in the next six months.
The surging dollar is on the verge of accelerating even more as investors shift their focus to the prospect of higher US interest rates
