U.S. dollar expected to fall further, but it could stay on course

2 minutes

April 28 - The dollar is expected to continue declining, driven by rising trade and fiscal deficits along with recovering growth that has been driven by a price increase of commodities prices said a fund manager and two economists.

However, a high real yield in the United States backed by a strong recovery in economics will prevent the dollar from falling on Wednesday, Binay Chandgothia told the Reuters Global Markets Forum, managing director and portfolio manager at Principal Global Investors in Singapore.

My sense is that the dollar weakens a bit more, 2% -- 5%, from here, said Chandgothia, whose firm manages nearly $545 million of assets.

He added that the dollar could get a lift from the US Federal Reserve starting to reduce its position as this will push real yields up at the short-to mid end.

The Fed is likely to keep on course despite growing momentum in the economy on Wednesday in its policy statement due at 2 p.m. EDT.

Robert Carnell, Chief Economist and Head of Research at ING Asia in Hong Kong, said that he expected the Fed taper to come at a time when the U.S. inflation will be dipping and prices in Europe will be picking up.

And this makes timing of currency direction very difficult.

Peter Cardillo, chief market economist at Spartan Capital in New York, said he expected the dollar index to break through the 90 level on the back of the U.S. deficit spending, Joe Biden's infrastructure bill and government spending on entitlement programmes.

Will trade around 83.50 by December 2021, Cardillo said.

On 31 March the dollar index is down 2.6% from its record high on 2021 and is currently trading at 91.004.

Carnell said he wasn't worried about inflation spiralling out of control, and that central banks in developed economies had been waiting for these price increases to happen.

While it does eventually argue against the consolidation of Emergency stimulus measures, he added.

Carnell expects the euro to trade by year-end at 1.228 against the dollar, but said that there were many factors that could undermine this call.

The timing of a broader global recovery is one; the timing of the taper from both the European Central Bank and the Fed, Carnell said.

The euro has increased against the dollar from its low of March 31 and is now trading at $1.2066.

Both Carnell and Cardillo expect the 10-year bond yield to rise to about 2.25% by 2021.

The benchmark 10-year yield is currently at 1.6378%, following a 30-day low of 1.776% on March 30, but has risen from its 0.906% hit on January 4. These interviews were hosted on the Reuters Global Markets Forum, a chat room hosted on Refinitiv Messenger. Sign up here to join the GMF: https://refini.tv 33 UoFoQ

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