Two of the world's largest money managers are divided about where the dollar goes from here after the greenback's worst quarter in more than five years.
The BlackRock Investment Institute says there's room for the U.S. currency to rise, while Russell Investments Group is calling an end to the dollar bull run of the past two years. The greenback was little changed Friday as investors digest Federal Reserve Chair Janet Yellen's concern that global headwinds may restrain the U.S. economy.
“We cannot rule out the Fed sounding more hawkish this year,” said Jean Boivin, head of economic and market research at a unit of New York-based BlackRock, which manages $4.6 trillion. “This is not where we are now, but we might come to a point later this year where the inflation data continues to move higher, and the Fed starts to sound more reassuring about the outlook. Once we get there, we would have a basis for the dollar to continue appreciating.”
The greenback rallied the past two years as the Fed tightened monetary policy while other global central banks deployed negative rates and boosted bond-buying stimulus. Losses have piled up this year as a dimming outlook for tighter U.S. monetary policy diminished the allure of dollar-denominated assets.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed on Friday after dropping to the lowest level since June 30 on Thursday. The gauge declined 3.9% in March, and fell 4.1% for the quarter, both the biggest losses since September 2010.
A measure of the greenback's momentum, known as the 14-day relative strength indicator, briefly fell below 30 Thursday. Levels below 30 are viewed by some traders as a signal declines have reached extreme levels and may reverse.
After the Fed raised rates in December for the first time in almost a decade, comments by policy makers, including Ms. Yellen on March 29 in a speech to the Economic Club of New York, have spurred investors to reassess forecasts for the greenback.
“The U.S. dollar is peaking,” according a note from strategists including Andrew Pease at Russell Investments, which manages $242 billion. “It has already turned weaker against the Japanese yen, and we don't expect too much upside against the euro.”
The greenback extended losses on Thursday after a report showed an increase in weekly jobless claims before the government issues its monthly employment data Friday. The U.S. added 205,000 jobs in March, according to a Bloomberg survey of economists, compared with a 242,000 increase the month before.
“Yellen's comments this week have increased downside risk to the dollar,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. “In terms of the dollar, these numbers and even tomorrow's payrolls number may have a somewhat limited impact.”