Dollar Back to Where It Began the Year as Rally Burns Out
It’s back to square one for the dollar.
Friday’s worse-than-expected U.S. employment data saw the Bloomberg Dollar Spot Index drop decisively below its 2021 uptrend, putting it back to little changed for the year. The biggest one-day slide in five months has also put the greenback at risk of a further decline toward the lowest since February 2018.
The data miss is the latest blow to the world’s reserve currency after its first-quarter revival was snuffed out by retreating Treasury yields, improving sentiment toward economies outside the U.S., and a dovish Federal Reserve. The dollar gauge has fallen almost 14% from a record high set last March, and the likes of JPMorgan Asset Management and T. Rowe Price are predicting more losses ahead as the global economy recovers.
“We continue to see the ‘peaking U.S. exceptionalism’ narrative playing out through a weaker dollar over time,” Citigroup Inc. strategists including Ebrahim Rahbari in New York wrote in a note. That’s thanks to “views on a dovish Fed, benign risk appetite and a global recovery,” they said.
The Swedish krone, Swiss franc and New Zealand dollar are leading gains in Group-of-10 currencies versus the dollar this quarter. In emerging markets, the Brazilian real, Czech koruna and Polish zloty have advanced the most against the greenback.
The dollar’s reversal gives some vindication to Wall Street bears who predicted a weaker currency in January, but were left scrambling to cover short positions when better-than-expected U.S. data pushed up Treasury yields. That move has also faded with benchmark yields down about 18 basis points from their 1.77% high in March, denting one of the biggest appeals of the greenback.
Betting against the U.S. currency is now back in vogue, with aggregate net short positions versus major peers climbing back to about $10 billion last week from $4 billion in mid-April, according to data from the Commodity Futures Trading Commission. Bearish bets totaled almost $31 billion in January.
“We expect the dollar to weaken further, given its diminishing appeal as a safe-haven currency as long as the global economic picture and risk appetite improve further,” UniCredit S.p.A. strategist Roberto Mialich in Milan wrote in a note Friday.