U.S. dollar’s woes are only beginning, some bears say

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U.S. Dollar and Euro Reuters | James Alexander Michie

FILE PHOTO: U.S. Dollar and Euro notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/File Photo

NEW YORK (Reuters) — There are dollar bears, and then there’s Ulf Lindahl.

The chief investment officer of currency manager A.G. Bisset believes the U.S. currency will plunge 36% against the euro over the next year or so, taking it to levels it has not seen in more than a decade.

The greenback’s recent weakness “is the beginning of a very large move” that could hurt the droves of investors exposed to it through their holdings in U.S. stocks and bonds, Lindahl said.

Wall Street is swarming with bearish dollar forecasts, though few are as extreme as Lindahl’s. The U.S. currency is near its lowest level in 27 months and is down about 11% from its 2020 peak against a basket of its peers, with Goldman Sachs, UBS and Societe Generale among the banks forecasting more losses. =USD

Hedge fund bets against the dollar in futures markets are at their highest level in about a decade, according to data from the Commodity Futures Trading Commission, while 36% of fund managers in a recent Bank of America Global Research survey named shorting the dollar as their top currency trade for the second half of the year.

Getting the dollar right is key for investors, as its trajectory sways everything from corporate earnings to the prices of raw materials such as oil and gold.

Lindahl’s research breaks down the dollar’s fluctuations over the decades into 15-year cycles that show the greenback weakening sharply against the euro before recovering most of the losses.

Though the dollar’s drop has slowed in recent weeks, that’s “really an opportunity to get out of the dollar,” he said.

Most bearish investors expect the dollar to depreciate on the back of stronger economic growth prospects outside the United States, rock-bottom U.S. interest rates, and concerns that programs to allay the coronavirus pandemic’s economic fallout are inflating fiscal deficits.

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Source: Saqib Iqbal Ahmed | Reuters

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