After falling for three months, the dollar is set to rebound, if this historical seasonal chart is any guide.
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, has appreciated in May in every year but one since 2007, according to a Bloomberg Seasonality Chart. That’s the best record among the 12 months.
Analysts’ theories include one that says the pattern is linked to a selloff of stocks and commodities that tends to happen in the same month. That drives demand for haven assets that the dollar is perceived to be. Another theory points to U.S. economic data often improving in May.
“Factors such as poor weather have meant bad data in the January-April period, and that could weigh on the dollar,” said Neil Jones, head of hedge fund sales at Mizuho Bank Ltd. in London. “These numbers often improve in May. Also, there is an old stock adage: ‘sell in May and go away,’” he added, referring to an equities strategy based on historical bias.
The index dropped 1.8 percent last month through April 29 as of 4:45 p.m. in London, adding to a 5.6 percent decline in the previous two months. The currency, which started January with a bang, lost ground since then as investors scaled back expectations of interest-rate increases after the Federal Reserve signaled it will take a gradual approach toward policy-tightening.
“If the U.S. data starts improving from here, as we would expect, and ultimately the Fed is in a position to hike rates in June, then you would think that May could be another month of stock, commodity underperformance and dollar outperformance,” said Valentin Marinov, head of Group-of-10 foreign-exchange strategy at Credit Agricole SA’s corporate and investment-banking unit in London. “If the U.S. data continues to disappoint, things may look different for the dollar.”