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According to some experts, clouds are gathering over the US currency, as a two-year greenback rally hit corporate profits in the United States and angered White House head Donald Trump.
Judging by the latest data from the Commodity Futures Trading Commission (CFTC), the bullish prospects for the dollar in the futures markets are now the most faded in more than a year and a half.
Bank of America analysts point out that the USD index formed the so-called "death cross" on the last day of 2019. This bearish pattern occurs when a 50-day moving average crosses down a 200-day moving average, which was previously accompanied by periods of dollar weakness in seven out of eight cases since 1980.
According to strategists at TD Securities, easing concerns about global trade and Brexit fueled investor risk appetite by forcing them to exit safe haven assets such as the dollar.
"The global economy now seems to be recovering. A reduction in uncertainty is likely to allow investors to take risks that they did not want to take before," they said.
Over the past few years, the US currency has been forced to confront a number of factors, including the Fed's dovish turn and concerns about a slowdown in US economic growth, which analysts thought should push the greenback down.
Last year, the USD index grew by more than 10% compared with the low of 2018.
UBS and Societe Generale are among the banks forecasting a weakening dollar this year.
American billionaire Jeffrey Gundlach also believes that the greenback's next major move will be a fall.
Trump is unhappy with the overly strong dollar, partly because it makes American products less competitive abroad. The index, which measures the strength of the USD against the currencies of the largest US trading partners, is near a record high.
Momtchil Pojarliev from BNP Asset Management believes that this trend will change soon. He is betting that the exchange rate of the US currency will fall against the euro, Japanese yen and Australian dollar, as economic growth in these countries is accelerating, and local central banks can raise interest rates, while the Fed will keep them unchanged. This should narrow the yield gap that supports the US currency.
However, there are those who believe that any weakness of the dollar will be short-lived.
In particular, Lee Ferridge of State Street Global Markets doubts that the yield spread between the US and other developed countries will be narrow enough to weaken the attractiveness of the greenback.
"A sharp slowdown in economic growth in the United States is likely to force investors to return to the dollar," he said.
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