It just may have been the week that broke the dollar.
The greenback’s worst slump since November has a bevy of strategists and investors saying a turning point is finally at hand for the world’s primary reserve currency. If they’re right, there will be far-reaching consequences for global economies and financial markets.
The Bloomberg dollar gauge was little changed in early Asian trading Monday. It tanked 2 percent last week, the biggest weekly drop since the five days through November 11. Many investors have been waiting for a downtrend in the dollar for months and the selloff has fund managers from M&G Investments to UBS Asset Management bracing for an outperformance in the likes of the yen and emerging-market currencies.
Of course, there’s a long history of investors getting burned by premature bets on Fed rate cuts that would sink the dollar. That was the case early this year, when the currency seemed to be on the verge of a protracted downtrend only to stabilize as US economic data drove home that the Fed wasn’t about to stop hiking.
“The interest-rate differential story is wavering but I wouldn’t give up on the dollar,” she said, given that the absolute difference in real yields remains high. Dollar bears can also lean on valuation measures. The currency’s strength has been particularly pronounced against the yen, to the point where the real effective exchange rate has Japan’s currency trading near its lowest level in decades.
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