Dollar dive fuels debate if currency’s rally coming to end

Bloomberg

The dollar’s pullback in recent days is prompting speculation about whether the currency’s relentless march higher is coming to an end. There is nonetheless a reluctance to write it off just yet.
After surging by more than 10% this year, the Bloomberg dollar index has tumbled close to 2% from the all-time peak it hit even as expectations for where the Federal Reserve will take interest rates have continued to nudge up.
There are signs that positioning is beginning to turn against the greenback and longer-term economic fundamentals are potential hindrances, according to Bank of New York Mellon strategist John Velis.
Yet even he is cautious about calling the turn right now, writing that the market still needs a catalyst to unwind.
A key focus for rates and currency traders right now is the upcoming US consumer-price inflation report that’s scheduled for release. But while a weaker-than-anticipated figure could take a little steam out of rate-hike bets and provide an excuse for further dollar selling, that might not spell doom for the greenback, especially given that its strength — in BNY’s view at least — has had more to do with growth than interest-rate differentials.
“For a real end to the dollar’s steep ascent, we think it would take more unequivocal noises from the Fed that the cycle is close to its peak,” Velis wrote in a report to clients, noting that is unlikely to happen until the Fed’s November meeting at earliest. The Bloomberg greenback gauge fell by around 0.4% after sliding almost 0.9% over the previous week, with the US currency sliding against almost all of its major peers. European currencies led gains among the Group-of-10, with the Australian, New Zealand and Canadian currencies also up as US stocks rallied and Treasury yields edged higher. The euro, helped by hawkish commentary out of the European Central Bank and the shifting situation in Ukraine, at one stage jumped more than 1.5% to $1.0198. The yen was the only major developed currency to lose ground Monday versus the dollar, but even it has stabilised a bit in recent days following some jawboning by Japanese officials.
From a technical perspective, the dollar is under assault but, according to Macro Risk Advisors’ John Kolovos, “not toasted just yet.” Speaking on Bloomberg Television, the technical strategist said that if the ICE Dollar Index breaks under 105 then “the odds are quite high that the dollar is toast.”