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Morgan Stanely expects US dollar rally to end

Morgan Stanely expects US dollar rally to end

Mubasher: US dollar’s rally has come to an end and the time is right to sell the greenback, Morgan Stanely said on Friday.

Morgan Stanley’s global head of foreign exchange (FX) strategy Hans Redeker believed that the greenback has currently reached its highest level.

“The [US dollar] may weaken as credit spreads widen, equity prices fall, and sovereign bond yields also begin falling amid disinflationary pressure and falling oil prices,” Redeker said.

The recent short-term foreign flows into US assets as well as vulnerability to a quick reversal indicated a possible weakness of the US currency, the US bank said.

“Instead of strong inward foreign direct investment or other long-term flows, we see evidence that flows to the US have been into money market funds and are carry trade motivated,” Redeker said.

In the same vein, a slowdown of US economy, declining oil prices, and more stable Chinese yuan (CNY), and tighter US market liquidity are set to weigh on the dollar, Redeker said.

Emerging market currencies, which have been pressured by soaring Treasury yields and strong dollar, would recover driven by lower oil prices and stable building material costs.

Since mid-April, the Bloomberg Dollar Spot Index rose 8%, driven by escalating trade tensions, more Federal Reserve monetary tightening, climbing Treasury yields as well as a strong US economy.

“We expect slowing US growth to benefit countries that are either reliant on [dollar-denominated] funding or vulnerable to higher global funding costs,” Redeker said.

By 9:14 am GMT, the US dollar index, which traces the greenback against a basket of six peers, stabilised at 96.9280.