Currency Bulletin: Is the US Dollar Rally Nearing an End?
Written by Samson’s CIO, Jonathan Lewis and Iraj Kani, our Quantitative Strategist, this piece analyses the impact of Fed’s March 18th Federal Open Market Committee (FOMC) announcement on the future direction of the dollar, and discusses the character of the recent dollar rally itself. Bulletin Highlights:
- Until the Federal Open Market Committee’s (FOMC) announcement on March 18th, the dollar had been in the midst of a powerful rally that was virtually unprecedented in terms of speed and strength.
- The current dollar rally has been so strong over the past 12 months that its returns have beaten more than 98% of comparable periods over nearly 60 years of data, a time span which includes the end of the Bretton-Woods Period and the beginning of the modern free float period for exchange rates.
- Based on our calculations, the current rally began at the end of April 2011 and, although it may only be 4 years old, as dollar rallies go this one may be getting long in the tooth.
- One of the most powerful forces behind the rally in the US dollar was a widely accepted view in the marketplace that the Fed would soon tighten, and that once the Fed began to tighten the FOMC would increase rates at a steady pace.
- Currency investors began to sell dollars as they focused on the change of language in the FOMC release on March 18th, and the change in the Fed’s own predictions for Fed Funds at year-end 2015.
- If the Fed is less likely to tighten aggressively, the dollar rally is more likely approaching at least an intermediate term top.