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Deutsche Bank’s Jain Bullish on Dollar as Bond Volatility Falls

Deutsche Bank AG co-Chief Executive Officer, Anshu Jain said he’s “constructive” on the dollar and praised the Federal Reserve for fostering a “slow, smooth” adjustment in the bond market as it plans to trim purchases.

“We are very constructive on the U.S. dollar for very fundamental reasons,” Jain said today in an interview with Bloomberg Television in Singapore. “A combination of a U.S. which is re-industrializing and a household which is starting to spend again could presage a long strong period for the U.S., which of course would be good for the dollar.”

Fed Chairman Ben S. Bernanke, who is scheduled to address U.S. lawmakers today and tomorrow, said June 19 the central bank may begin to slow its $85 billion in monthly bond purchases this year if economic growth meets policy makers’ goals. The Fed should be happy with how the bond market has reacted, Jain said.

“This was an unprecedented program and the fact that they’ve been able to announce the end to it, or the impending end to it, without a major dislocation has to be very pleasing for them,” he said. “I’m very glad that we’re getting a slow, smooth continuous adjustment as opposed to a highly volatile one, particularly in credit and mortgage markets.”

Price swings in benchmark Treasuries as measured by the Merrill Lynch Option Volatility Estimate MOVE Index dropped to 88 yesterday, the least since June 19. It touched 117.89 on July 5, the highest since December 2010. The one-year average is 64.47.

Ebbing Volatility

Currency markets have calmed too, as shown by a drop in JPMorgan Chase & Co.’s Global FX Volatility Index to 10.44 percent today, set for the lowest in a month based on closing levels. It reached a one-year high of 11.77 on June 24.

The dollar has been buoyed by speculation that the Fed will reduce the $85 billion of monthly Treasury and mortgage-bond purchases that it uses to contain borrowing costs and pump money into the economy.

The risk is that U.S. growth may not meet expectations. Sales at U.S. retailers climbed 0.4 percent last month, short of the 0.8 percent gain that was the median estimate of economists surveyed by Bloomberg News, Commerce Department figures this week showed. The report raised concern consumers are exercising self-restraint that indicates the economy ended the second quarter on a weak note.

Goldman Contrarian

Bernanke will present his semi-annual monetary policy report to the House Financial Services Committee today, and will appear before the Senate Banking Committee tomorrow.

Goldman Sachs Group Inc. is refusing to get caught up in the hype that’s making the dollar this year’s best-performing major currency.

Rivals have been too aggressive in anticipating tighter Fed monetary policy, according to the Wall Street bank that generates the highest percentage of its revenue from trading. Goldman Sachs predicted the dollar will depreciate 6 percent to $1.40 per euro over the next 12 months, from $1.3127 as of 8:32 a.m. in London. The median estimate of analysts surveyed by Bloomberg is for a 5.9 percent jump to $1.24 by mid-2014.

Traders have misinterpreted the U.S. central bank’s recent signals that it may reduce the amount of bonds it buys to mean that interest-rate increases are also likely within the next two years, said Thomas Stolper, Goldman Sachs’s chief currency strategist.

“The dollar has benefited from this tapering debate, but the move will be temporary,” London-based Stolper said in a July 15 phone interview. “There’s a risk that the Fed will hike later than when markets anticipate. There’s a risk for further re-pricing that could push the dollar down.”

Growth Strategy

Jain, 50, and co-CEO Juergen Fitschen led a meeting of the management board and group executive committee in Singapore yesterday, the bank’s first such gathering in the city state, it said in a statement today. Jain said Deutsche Bank’s plans in Asia are “clearly for expansion.”

The U.S. economy may grow at a pace near 3 percent or possibly 3.5 percent in 2014 and into 2015, Jain said. A Bloomberg survey of economists projects 1.8 percent this year, 2.7 percent in 2014 and 3 percent in 2015.

“U.S. growth is going to be strong,” Jain said.

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