$1 Trillion Asset Manager Says the Dollar Is Overvalued
- Greenback has factored in prospect of first U.S. rate increase
- Dollar is undervalued against many Asian currencies, Kwok says
The dollar is overvalued and is unlikely to extend gains versus the euro and yen unless the Federal Reserve raises interest rates more than once, according to Amundi Asset Management, which oversees about $1 trillion.The greenback has already factored in the prospect of the Fed’s first rate increase in almost a decade, said James Kwok, head of currency management at the company in London.
The dollar is about 14 percent overvalued versus the euro and 12 percent against the yen, based on the Organization for Economic Cooperation and Development’s purchasing-power parity gauge.“The U.S. dollar is already overvalued against the euro and yen from most of the fundamental models,” Kwok said in an e-mail interview.
“The market does not believe that the Fed can hike much more in the future.”Amundi’s view contrasts with Goldman Sachs Group Inc., which said this month that the euro may fall up to 10 U.S. cents as the European Central Bank is set to increase currency-weakening stimulus to meet its inflation target. The yen will weaken to 130 versus the dollar next year as Bank of Japan Governor Haruhiko Kuroda is set to boost monetary stimulus in October, Goldman Sachs analysts, including Robin Brooks, the chief currency strategist in New York, wrote in a report more than a week ago.
Fed’s Outlook
The dollar has surged 15 percent in the past 12 months to $1.1125 per euro and 10 percent to 119.84 yen as of 7:02 a.m. in London. Strategists expect the greenback to strengthen to 125 yen and $1.07 against the euro at the end of year, according to their medianestimates.
Futures show there is a 39 percent odds the Fed will raise rates in December, down from a 44 percent probability on Sept. 17, when the central bank left its benchmark on hold. Fed Bank of Atlanta President Dennis Lockhart reiterated Tuesday that he is “comfortable with the idea” that the U.S. will tighten policy this year, even as rising volatility threatens the economic outlook.
The dollar remains undervalued against many Asian counterparts, Kwok said. The currencies of Malaysia, Indonesia and Taiwan were among the worst performers against the dollar since China’s shock devaluation of the yuan on Aug. 11 triggered a global market rout.
“The Chinese yuan devaluation has exposed the over-valuation problem of many Asian currencies,” Kwok said.
Dollar Bets
Hedge funds and other large speculators reduced bets that the dollar will strengthen against eight major currencies, data from the Commodity Futures Trading Commission showed. Net dollar longs fell to 256,044 contracts in the week ended Sept. 15, the least since May.
Insight Investment Management Ltd., a Bank of New York Mellon Corp. unit, has started to rebuild wagers for a stronger dollar after cutting most of its positions before the Fed’s policy meeting last week, said Paul Lambert, the firm’s head of currencies in London.
“Positioning is much lighter and the sentiment is much more balanced,” Lambert said. “We felt that the market was sitting uncomfortably long of dollars with too much of a positive bias towards the dollar; that’s been largely corrected now.”
Source: Bloomberg – $1 Trillion Asset Manager Says the Dollar Is Overvalued
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