Dollar bulls beat bears in longest futures stretch since ‘99

March 19 (Bloomberg) -- Not since 1999 have currency traders been bullish on the dollar for so long, a sign that the market sees the U.S. resuming its role as the engine of global economic growth.

Futures anticipating a stronger dollar against its developed-market peers have outnumbered those predicting a drop for 26 consecutive weeks through the five days ended March 13, according to Commodity Futures Trading Commission data. That’s the longest streak since the start of a three-year rally in the world’s reserve currency 13 years ago.

While much of the 2.4% gain in the Dollar Index since 2009 has come from investors seeking safety from European debt turmoil and the global financial crisis, analysts now say expansion is trumping fear as a reason for buying U.S. assets. Growth in retail sales and jobs in the world’s biggest economy has damped expectations for more Federal Reserve stimulus that might debase the currency.

“The key message is that it’s not a flash-in-the-pan shift in sentiment, this seems to be something more structural,” Gareth Berry, a foreign-exchange strategist at UBS AG in Singapore said in a March 13 telephone interview. “The psychology around the dollar does appear to be changing and I’m confident that dollar strength will probably continue.”

Expectations for U.S. growth have diverged from the Group of 10 nations since December. America’s gross domestic product will expand 2.2% this year, according to the median forecast of 91 economists in a Bloomberg News survey, while developed nations increase 1.2%. The G-10 prediction is down from 2.5% in July, while the U.S. figure has stabilized near 2%.

Dollar Index

 

“There’s substantial scope going forward for the dollar to recover a lot more,” Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd., said in a March 14 interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “One of the stories is this very, very significant dichotomy between the fundamentals in the U.S. and the fundamentals in Europe.”

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trade partners, fell 0.3% to 79.786 last week.

After the Australian dollar and the British pound, the U.S. currency is up the most in the past six months against its nine developed-nation counterparts, according to data compiled by Bloomberg. It has gained 1.5%, compared with the yen’s 9.3% drop and the euro’s 2.4% decline.

Increased Forecasts

The dollar traded at $1.3241 per euro at 2:50 p.m. in New York from $1.3175 on March 16, and bought 83.39 yen from 83.43.

Berry expects the dollar to appreciate to $1.30 per euro in the next month and to $1.25 in three months, and the euro to trade at 106 yen by the end of the second quarter, UBS says.

Currency strategists have increased forecasts for the dollar against the euro and yen this year. The greenback will trade at $1.30 per euro, down from expectations of $1.45 in September, according to a Bloomberg News survey of 53 analysts. The dollar will trade at 87 yen next year, up from 83 yen forecast earlier this year.

Treasury bonds with yields higher than their German counterparts are luring foreign investors to U.S. debt. Two-year Treasuries yield 0.36%, 3 basis points more than similar- maturity German bunds. Six months ago, bunds were yielding 34 basis points more than Treasuries.

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