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Dollar Drop Signals World's Best Forecaster to Start Buying

It's time for investors who bailed on the dollar in the past few weeks to get back in, says the most-accurate currencies forecaster.

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Exports account for only 14 percent of the American economy, according to World Bank data.

April 7, 2015 | The greenback has tumbled 4.3 percent versus the euro since touching a 12-year high last month amid speculation the Federal Reserve will delay raising interest rates, in part because the dollar's strength is hurting U.S. economic growth. That concern is overblown, according to ING Groep NV, which topped Bloomberg's rankings of foreign-exchange analysts for the second quarter in a row.

"The market is now pricing in a very subdued pace of the tightening cycle -- we disagree," Petr Krpata, a foreign-exchange strategist at ING in London, said on April 1 by phone. "We just see the latest correction as a perfect opportunity to get into the trade again."

Even with the recent reversal, the dollar has rallied between 3.7 percent and 29 percent against all of its major peers since mid-2014 as the Fed's plans to raise interest rates attracted cash to the U.S., at the same time that central banks from Europe to Japan boosted their stimulus. That momentum halted when Fed officials cut their forecasts for rate increases last month and alluded to the currency's drag on exports.

ING sees the Fed raising rates this year even after an April 3 report showed the U.S. added the fewest jobs last month since December 2013. That makes buying the dollar versus the euro the best play in currency markets, according to the Amsterdam-based bank, among the first to say the currency pair will achieve parity this year for the first time in more than a decade.

"The stronger dollar doesn't necessarily have to change the U.S. economic prospect," said Krpata, who helps compile ING's forecasts along with London-based head of currency strategy, Chris Turner.

Exports account for only 14 percent of the American economy, according to World Bank data. That's the least among Group of 10 nations, and compares with 30 percent for Canada, 46 percent for Germany, and over 80 percent for the Netherlands and Belgium.

ING forecasts the dollar, which traded at $1.0915 per euro at 9:05 a.m. in London, to strengthen to parity by mid-year and reach 95 cents by Dec. 31. That's more bullish than the median year-end estimate of $1.05 in a Bloomberg survey of 69 strategists and economists. It reached $1.0458 on March 16, the strongest since January 2003.

While monetary authorities worldwide have slashed borrowing costs this year to revive growth, an unprecedented bond-purchasing program by the European Central Bank, amplified by negative interest rates, has made the single currency a prime selling target for investors.

ING topped Bloomberg's rankings of foreign-exchange analysts for the four quarters ended March 31, after also leading the previous period.

The best forecasters in Bloomberg's rankings were identified by averaging individual scores on margin of error, timing and directional accuracy across 13 currency pairs during the past four quarters.

Banks had to be ranked in at least eight of the pairs to qualify for the overall placing, with 60 succeeding. ING's score of 60.98 compares with No. 2 Credit Suisse Group AG's 60.71.

Source:
Bloomberg

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