World Economy

Top Fund Manager Insists USD Will Weaken This Year

Top Fund Manager Insists USD Will Weaken This YearTop Fund Manager Insists USD Will Weaken This Year

DoubleLine Capital’s Jeffrey Gundlach sees the dollar weakening this year, challenging an increasingly fragile consensus that the greenback is headed higher, after its worst week versus the yen since July 2009.

Gundlach, who oversees the $54.7 billion DoubleLine Total Return Bond Fund, bought currencies other than the dollar in his diversified funds for the first time in five years last month, he said at an event in Beverly Hills, California, on Friday. The euro is likely to strengthen against the dollar as the probability the Federal Reserve will increase borrowing costs at its March meeting is virtually zero, and only 50% for the rest of the year, he said, Bloomberg reported.

“The dollar will fall in 2016,” said Gundlach, whose fund has returned 1.5% this year, outperforming 79% of its peers. Its “wrong, wrong, wrong” to think the dollar will get stronger when the Fed raises rates, he said, adding “Guess what, the Fed did raise rates in December, and the dollar fell.”

Popular bullish dollar trade of the past two years has lost momentum, with a gauge of the currency erasing all of this year’s gains as traders push out expectations for rate increases in the US, signs of wage growth in a payrolls release Friday couldn’t offset a shadow cast by reports earlier this week that showed weaker services industries, which account for about 90% of the economy.

The US currency lost 3.5% this week to 116.87 yen, the largest decline since the five days ended July 10, 2009. It fell 3% to $1.1158 per euro. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, fell 1.9% from a week earlier.

Hedge funds and other large speculators reduced net wagers on dollar strength versus eight major peers to 265,159 contracts in the week through Feb. 2, the lowest level since November, data from the Commodity Futures Trading Commission show.

 Dollar Rally

The dollar has advanced about 20% since the middle of 2014 on speculation the Fed will boost rates while the rest of the world eases. The greenback is forecast to strengthen further versus 13 of its 16 major peers by year-end.

Deutsche Bank AG, the world’s second-largest currency trader, Bank of America Corp. and BNP Paribas SA have all reiterated forecasts for the US currency to gain this year, while noting hurdles and a potentially uneven upward path.

Dollar bulls ended this week on a high note with better-than-forecast wage data in the labor department’s monthly payrolls report, even as the number of jobs added fell to the lowest in four months. US retail sales likely grew 0.1% in January, after falling 0.1% a month earlier, according to the median estimate of analysts before a report due Feb. 12.