Credit Suisse Group AG is starting to cut positions that seek to profit from the US dollar’s strength, according to Robert Parker, a senior adviser in the investment, strategy and research group.
“What is the most crowded trade in the world?” he said in an interview at an investors’ conference in Singapore. “Everybody is long the dollar. I hate crowded trades.”
Strategists predict that the US dollar’s gains will slow in coming months.
The currency will appreciate almost 3 percent to US$1.04 per euro by the end of the year, according to a Bloomberg survey, after surging 14 percent last year.
Its advance versus the yen will be limited to less than 5 percent, after jumping more than 10 percent in each of the past three years, the survey said.
“Being long, the dollar has been a very attractive trade,” Parker said at the Credit Suisse Global Megatrends Conference. “It’s time to close it off.”
Parker said financial markets have already priced in the prospect of higher US interest rates.
“It is so over-discounted,” he said.
The US Federal Reserve is to increase borrowing costs at its December meeting, based on a Morgan Stanley index, compared with a prediction for September about a month ago.
The US dollar traded at US$1.0703 to the euro at 12:55pm in London yesterday, having advanced 29 percent in the past 12 months.
The greenback was at ¥119.36 versus ¥102.62 a year ago.
The euro and yen are cheap on a purchasing power parity basis, Parker said.
The two currencies have tumbled against the US dollar since the middle of last year, as the Bank of Japan (BOJ) and the European Central Bank (ECB) boosted stimulus to counter deflation.
“The BOJ is very conscious of pressure from other Asian central banks, who say that Japan has an unfair competitive advantage in the weakness of the yen, Parker said. “The ECB has largely achieved what it wanted,” that is, weakening the euro.
US policymakers will probably raise borrowing costs slowly, starting from as early as September, before accelerating the pace of increases from the second half of next year as inflation picks up, Parker said.
The Fed funds rate is likely to climb to 2.5 percent by early 2017, he added.
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