The dollar’s three-week rally is just the beginning, according to Deutsche Bank AG.
A slump by the greenback earlier this year has “likely run its course,” analysts at the world’s second-largest currency trader wrote in a note Friday. The bank favors buying the U.S. currency versus emerging markets — such as China, Mexico and South Korea — following a shakeout in speculative bets on the dollar, George Saravelos, co-head of global foreign-exchange research in London, wrote.
With policy makers from the Group-of-Seven economies meeting in Japan, the Federal Reserve this week gave the dollar a boost by signaling that it may raise interest rates as soon as June. That helped send the greenback to a seven-week high, providing relief to policy makers outside the U.S. who have watched with dismay as a weaker dollar eroded the stimulatory effect of interest-rate cuts and bond purchases.
“The dollar still has some legs,” said Sebastien Galy, a strategist at Deutsche Bank in New York. “The global dollar trend is probably far less appealing than it used to be, but there’s still some opportunity there.”
The Bloomberg Dollar Spot Index, which tracks the dollar versus 10 peers, added 0.8 percent this week. The greenback rose 0.8 percent to $1.1224 per euro and gained 1.4 percent to 110.15 yen.
Market Swings
The dollar slumped 12 percent versus the yen, 7 percent versus the euro, and 7 percent against 10 peers this year before turning higher this month.
More neutral positioning signals room for dollar gains. Hedge funds and other large speculators cutting bets against the dollar this week after turning net bearish on the currency for the first time since 2014 at the end of April, data from the Commodity Futures Trading Commission show.
“The dollar cycle isn’t old enough to die of old age,” Saravelos wrote. “Recent weakness has likely run its course.”
For Deutsche Bank, the dollar’s biggest gains will be versus emerging markets, partly because they rely less on Fed expectations.
New York and Richmond Fed presidents both indicated this week that the central bank may look to raise rates as soon as June — a message also hinted at in minutes from its last meeting. Markets are pricing just a 30 percent likelihood of a hike next month and a 73 percent by the end of the year.
State Street Corp., with about $2.3 trillion under management, agrees. Emerging markets are likely to slump versus the dollar, while the performance of the greenback versus the euro and yen depends on the Fed.
“The dollar does go up against risky assets,” Lee Ferridge, the Boston-based head of macro strategy for North America at State Street Global Markets, said in an interview at Bloomberg’s New York headquarters. “But for euro and yen, it’s much more subtle now because that’s about policy divergence.”
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.
The Nigerian Naira remained under pressure against the United States Dollar on the parallel market at N475 exchange rate, while the value has not improved against the Euro and Pound, inflation rose to 15.75 percent in the month of December to further compound Nigeria’s predicament.
Economic uncertainties amid the rising number of COVID-19 continues to weigh on the Nigerian Naira across key foreign exchange markets.
The Nigerian Naira depreciated against the United States Dollar on the Investors and Exporters (I&E) Foreign Exchange Window on Thursday.
The local currency depreciated by 0.34 percent to N394.67 per US Dollar, down from N392.69 it opened the day.
On Thursday, investors exchanged $215.63 million on the I&E window.
Despite efforts to ease forex scarcity with $20 billion diaspora remittance, the Naira continued to fall against global counterparts due to weak remittance inflows from developed nations.
Like other nationalities, Nigerians in the diaspora are struggling with lockdowns, surged in the unemployment rate and the drop in global earnings.
Also, weak foreign reserves amid rising debt servicing and other expenditures are hurting the central bank’s ability to intervene effectively across the foreign exchange markets as usual.
Stanbic IBTC Holdings Plc has shut down its bureau de change subsidiary, Stanbic IBTC Bureau De Change Limited (Stanbic IBTC BDC) due to the change in foreign exchange inflow policy.
It should be recalled that the Central Bank of Nigeria (CBN) adjusted the policy of diaspora remittance inflow to stimulate growth and ease forex scarcity across the nation.
Therefore, Stanbic IBTC said the decision to discontinue its bureau de change operations was because of the recent changes in diaspora inflow that now affords customers the opportunity of purchasing foreign exchange (PTA and BTA) directly from Stanbic IBTC Bank at any of its branches nationwide.
In a statement signed by Chidi Okezie, Company Secretary, Stanbic IBTC, said the bureau de change business was discontinued effective from 01 January 2021 through relinquishing of its operating license.
“The intention is to repurpose this subsidiary for other business ventures in the near future, and stakeholders would be duly notified when all engagements have been concluded in this regard,” it stated.