The US dollar is in the midst of a multi-year downtrend and would cede ground against almost all major currencies, Nomura said.
The currency is overvalued and traders have paid too much attention to the Federal Reserve tightening cycle, Bilal Hafeez, an analyst at the Japanese firm said in a note titled “Letter from America: Deer-hunting with Donald Trump.”
This time, like previous major dollar trends, the greenback’s weakness would be broad-based meaning it weakens against the yen, sterling and other risk currencies, he said. That is in contrast to consensus opinion for the US currency to either appreciate or hold ground.
For instance, Claudio Piron and Athanasios Vamvakidis, FX strategists at Bank of America-Merrill Lynch (BAML) maintain their positive view towards the US dollar. They expect the currency to hold its own through the end of the year against pretty much every major currency other than the British pound.
Nomura had a contrasting view.
“The dollar is overvalued, the current account deficit is growing and the rest of the world is catching up to tightening policy,” Nomura’s Hafeez said.
“Now most clients did not think in these terms. They focused almost exclusively on the business cycle and monetary policy dynamics. Most could not see the dollar trending down if US yields were higher than the euro area’s or other countries.”
He expects the euro to rise to $US1.15 to $US1.20 by the end of 2017, helped also by Europe’s political fortunes changing with the election of Emmanuel Macron in France. Nomura sees him as capable of getting things done while US President Donald Trump hits obstacles.
A short while ago, the common European currency bought $US1.1238 and is near a six month high. The dollar index, a gauge of the greenback against the currencies of the US trading partners, is near its lowest since November.
Investors are concerned the turmoil surrounding the Trump administration, which is facing scrutiny about whether the president asked the former head of the FBI to drop an investigation, alongside questions about his handling of secret intelligence, would derail the economic agenda.