World's Biggest Money Managers Can't Agree on Dollar's Direction

April 1, 2016 06:00 AM
 
World's Biggest Money Managers Can't Agree on Dollar's Direction

Two of the world’s largest money managers are divided about where the dollar goes from here after the greenback’s worst quarter in more than five years.

The BlackRock Investment Institute there’s room for the U.S. currency to rise, while Russell Investments Group is calling an end to the dollar bull run of the past two years. The greenback extended its loss Thursday as investors continue to digest comments from Federal Reserve Chair Janet Yellen reflected concern global headwinds may restrain the U.S. economy.

“We cannot rule out the Fed sounding more hawkish this year,” said Jean Boivin, head of economic and market research at a unit of New York-based BlackRock, which manages $4.6 trillion. “This is not where we are now, but we might come to a point later this year where the inflation data continues to move higher, and the Fed starts to sound more reassuring about the outlook. Once we get there, we would have a basis for the dollar to continue appreciating.”
 
The greenback rallied the past two years as the Fed moved toward higher interest rates while other global central banks deployed negative rates and boosted bond-buying stimulus. This year, losses have piled up as a dimming outlook for tighter U.S. monetary policy limits the allure of dollar-denominated assets.

The Bloomberg Dollar Spot index, which tracks the currency against 10 major peers, dropped 0.1 percent as of 5 p.m. New York time, after reaching the lowest level since June 29. It declined 3.9 percent in March, and weakened 4.1 percent for the quarter, both the biggest losses since September 2010.

A measure of the greenback’s momentum, known as the 14-day relative strength indicator, fell below 30 Thursday. Levels below 30 are viewed by some traders as a signal the currency has reached extreme levels and may reverse.

Market Watch

After the Fed raised rates in December for the first time in almost a decade, comments by policy makers, including Yellen on March 29 in a speech to the Economic Club of New York, have spurred investors to reassess forecasts for the greenback.

“The U.S. dollar is peaking,” according a note from strategists including Andrew Pease at Russell Investments, which manages $242 billion. “It has already turned weaker against the Japanese yen, and we don’t expect too much upside against the euro.”

The greenback extended losses Thursday after a report showed an increase in weekly jobless claims before the government issues its latest employment report Friday. The U.S. added 205,000 jobs in March, according to a Bloomberg survey of economists, compared with a 242,000 increase the month before.

“Yellen’s comments this week have increased downside risk to the dollar,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. “In terms of the dollar, these numbers and even tomorrow’s payrolls number may have a somewhat limited impact.”

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