NEW YORK- Currency market investors are less sure about the US dollar’s outlook now than they have been for many months, prompting sharp gyrations by the greenback last week despite red hot inflation data and a hawkish Federal Reserve.
“Everybody had been positioned for a stronger dollar” going into the new year, said Jack McIntyre, portfolio manager at Brandywine Global. Then last week, the US Dollar Currency Index, which tracks the greenback against six major currencies, fell as much as 1.2 percent before paring loses to finish the week down 0.6 percent.
The drop came after Fed Chair Jerome Powell said the US economy is ready for the start of tighter monetary policy and data that showed the largest annual rise in inflation in nearly four decades.
Dollar bears view the recent volatility as evidence that a lot of good US economic news was already priced in after international Monetary Market speculators exited 2021 with a net long position in the dollar valued at about $20 billion, close to the most bullish in two years.
For months, the dollar had been supported by the idea that monetary policy in the United States was likely to normalize at a faster pace than in many advanced economies. Now investors are growing more confident about other parts of the world, and looking for economies where growth could surprise to the upside.
Goldman Sachs recently said the euro area will outgrow the US economy over the next two years. “I think we are seeing a transition in currency markets. It’s less to do with relative monetary policy and more about relative growth,” McIntyre said. – Reuters
