What will be effective means of trading the end of the strong Dollar trend? Bloomberg Markets reports that the strong dollar trend has about run its course.
The dollar’s three-year advance is coming to an end as central banks recognize a strong U.S. currency is not in the interests of the global economy, according to Thomas Kressin, Munich-based head of European foreign exchange at Pacific Investment Management Co.
“We believe the strong-dollar trend we’ve seen over the last couple of years has come to an end,” Kressin, whose company manages almost $1.5 trillion, said at Bloomberg’s FX16 conference in London. “The dollar is more likely to trade in a broad trading range against the euro and yen and not make any significant gains anymore.”
Pimco has reduced bets the euro and yen will weaken, according to Kressin. The yen surged past 108 per dollar Thursday, reaching the strongest level in 1 1/2 years, as demand for haven assets and the BOJ’s apparent reluctance to intervene kept investors buying.
How will a stable or weakening dollar affect other markets? Trading the end of the Strong Dollar Trend will require traders to successful anticipate collateral market moves.
Weak Dollar, Strong Economy
The ever-strengthening dollar has put a crimp in US manufacturing and exports. It will be a relief to US producers and exporters to see the value of the dollar fall as it will make US exports more competitive. The stock market sees this. Market Watch notes that the US stocks take their cue from the fading dollar.
Need a few stock trading clues for next week? Watch the U.S. dollar. Because what is bad for the buck is usually good for the stock market, according to strategists.
“A weaker dollar is bullish for the economy and stocks and will help the export business,” said Bruce Bittles, chief investment strategist at RW Baird & Co. “More importantly, it will help with corporate profits since it had been a very large drag on earnings.”
Of course, currency watching can require Fed watching. The Federal Reserve on Wednesday signaled two more interest rate hikes for this year instead of the four it had projected back in December; it cited an uncertain global economic outlook.
Some believe that there is more to the Fed story of backing off from a promised four interest rate increases in 2016. In fact, some experts believe that the Fed’s intent, plain and simple, is to devalue to dollar. Read the article on our sister site, ProfitableInvestingTips.com. Is the Fed Devaluing the Dollar?
On one hand the U.S. Federal Reserve needs to walk a fine line between a reemergence of inflation and creating a recession with higher interest rates. And on the other hand the steadily strengthening dollar threatens to kill of the U.S. post-recession economic expansion. So, is the Fed devaluing the dollar or simply being cautious about how fast they raise interest rates?
Whether or not the main Fed intent is to devalue the US currency or to protect against a renewed recession the result will be the same with a stronger US manufacturing sector and stronger related stocks.
