Dollar’s stratospheric rally ‘is running out of steam’

Dollar’s stratospheric rally ‘is running out of steam’

Multi-managers are reversing their bullish dollar positions after large rises in the greenback versus rival currencies.

Driven by optimism about the US’s economic prospects, the currency has had a stratospheric rise in the past year, appreciating by 13.7 per cent against the pound.

But worries the good times for the trade could soon be over have prompted several fund managers to cut their exposure.

Article continues after advert

James Sullivan, investment director at Coram Asset Management, said the dollar strength trade had “largely played out”.

The manager said when he ran the funds at his former employer Miton, they had a strengthening dollar as their “dominant trade”, accounting for “greater than 50 per cent” of their assets.

“Now, in the Coram funds, we probably have single-digit exposure [through things like gold], which for us is an extremely modest position in dollar assets,” he said.

“The dollar remains the most robust currency and the least worst, but the value of that trade has largely played out and any further upside looks modest.”

Joe Le Jehan, a Schroders multi-manager, said his team’s move away from the dollar had been “quite aggressive” with another chunk of their exposure jettisoned in March.

The manager said the peak of their exposure to the dollar early last year – through both explicit currency holdings and funds with higher-than-average exposure to the currency – stood at 25 per cent but it was now “less than 10 per cent”. He added: “We also held some explicit long dollar/short euro exchange-traded funds which we have sold out of now. And we had a long dollar/short sterling position which we have also halved.”

The calls come shortly after David Bloom, chief currency strategist at HSBC – who forecast in 2013 that the dollar would rebound in the years after the financial crisis – turned bearish. In a recent note, he said: “Markets are so caught up in the price action, they are ignoring anything that suggests the move might end.

“The feeling in the market is that we are in the middle of a sustained dollar rally, whereas we would argue this is, in fact, the beginning of the end of the bull run.”

Ben Seager-Scott, director, investment strategy at Tilney Bestinvest, said it was “fair to say” the trade was “running out of steam” but was “reluctant” to call it the absolute top.

He added: “We typically don’t look to take aggressive currency calls, but we are conscious of which currencies we are exposed to, and the recent unorthodox monetary policies have meant developed market currency movements have been far greater drivers of asset returns than has been the case.”