Tags: David Rosenberg | Gluskin | dollar | Fed

David Rosenberg: Dollar Due for Pullback After 'Too Far Too Fast' Rise

By    |   Tuesday, 24 February 2015 10:43 AM

The dollar may be due for a pullback as the Federal Reserve grows concerned about the rapid rise in the currency's value, which is backed by nearly universal bullish sentiment, according to a Wall Street strategist.

“The trade-weighted dollar may have just risen a bit too far and a bit too fast,” David Rosenberg, chief economist at Gluskin Sheff & Associates Inc., said. “A 17 percent appreciation over a half-year period has only happened three other times in the past and never did prove to be sustainable.”

The dollar has gotten more valuable as the Fed wound down the trillion-dollar quantitative easing program that had kept borrowing costs low. The central bank wanted to boost the economy by encouraging consumers to spend their money rather than save it, and by providing businesses with a less expensive source of investment capital.

The future direction of borrowing costs has become a source of major economic debate, with some Fed officials arguing for higher interest rates and others expressing concern about a stronger dollar. Investors are seeking greater insight on rates from Fed Chair Janet Yellen’s testimony on Capitol Hill this week.

“The Fed became more vocal on how the dollar is acting as a constraint on growth and this is playing out in the trade data which are subtracting a point per quarter from GDP growth,” Rosenberg said in a February 20 report obtained by MoneyNews. Gross domestic product is calculated by adding together the value of the trade balance, government spending, consumer expenditures and business investment.

As evidence of dollar bullishness, Rosenberg pointed to the near-record level of 70,000 net long positions in dollar futures traded on the Intercontinental Exchange.

“There has not been a week since the end of May 2014 where the speculators have been net short the greenback,” Rosenberg said. “What happens if they start to take some profits?”

Looking back four years, the best time to get bullish on the dollar was when the currency was completely shunned at the beginning of 2011 as the US economy stalled out.

“That was when it made sense to turn bullish on the dollar,” Rosenberg said. “The beauty of hindsight.”

A prolonged period of lower interest rates would lead to dollar weakness.

But New York Post columnist John Crudele argued that a weak U.S. economy will keep the Fed from raising rates.

"When the appointed hour comes this summer or fall, I think the Fed will balk," he said. "The economy just isn't doing that well, even after U.S. financial data are gussied up to make it look like we have the prettiest economy on the planet."

GDP expanded 2.4 percent last year, the fastest growth since 2010.

If Crudele is wrong about the Fed's timing, he sees several negative ramifications.

"Investors are going to lose a lot of money in the fixed-income market," he said. "Washington's deficit will go up. Not only will Uncle Sam have to pay more to borrow money in the open market but also the fake profits being turned over to the Treasury by the Fed will cease," Crudele adds.

"The value of the dollar will rise some more. Companies that do business overseas will have their profits pinched even more than they have already been."


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The dollar may be due for a pullback as the Federal Reserve grows concerned about the rapid rise in the currency, which is backed by nearly universal bullish sentiment, Wall Street strategist David Rosenberg said.
David Rosenberg, Gluskin, dollar, Fed
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2015-43-24
Tuesday, 24 February 2015 10:43 AM
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