Mark Nash thought the US dollar’s rally was done.
It was late 2022, and his bets against bonds had paid off after the Federal Reserve’s interest-rate hikes sent markets into a tailspin. So his fund at Jupiter Asset Management, like many others, was placing a popular wager on the next phase of the cycle: As the Fed’s tightening neared an end, it would halt the stampede of cash that raced in to seize on rising rates — and the US currency would fall.
That unexpected resurgence is reverberating around the globe. Investors are now unwinding trades. Officials in China and Japan are moving to protect their currencies. US companies are bracing for a hit to their earnings. And across the developing world it’s evoking painful memories of 2022, when the dollar delivered economic shocks by pushing up the price of commodities in global markets and increasing the burden of foreign debts.
Instead, the US has powered ahead even as growth shows signs of stalling overseas. That’s driving investors to shift cash to the US, where interest rates are expected to remain higher and the stock market has been supported by expectations the Fed will wind up its rate-hiking cycle with the economy largely intact.
But with little confidence the dynamics behind its recent rise will soon reverse, analysts have been ditching bearish calls on the dollar. “The only positive I can think of for the euro and the sterling,” he wrote in a note to clients, “is that expectations about UK and eurozone growth are already dire relative to the US.”
Last week, Poland’s government stepped in to prop up the zloty after a larger-than-expected interest-rate cut triggered a selloff in the currency. Such rate moves might have gone unpunished in the past, but the strong dollar leaves little room for policy loosening to support economic growth.
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