The U.S. currency is poised to beat its Group of 10 counterparts this year as the world’s biggest economy outperforms its peers, according to Resona Bank Ltd., part of Japan’s fifth-largest lender.
“2014 is the year of the U.S. dollar,” Kazuyuki Takigawa, who oversees $6 billion as the bank’s Tokyo-based foreign fixed income chief fund manager, said yesterday in an interview in Singapore. “The U.S. economy is in a steady recovery.”
Central bank policies and a shrinking U.S. current-account deficit are also supporting the dollar, Takigawa said. Resona sold its holdings of the Canadian and Australian currencies in 2013 to buy the greenback, he said. European bonds may benefit because the region’s economic growth won’t be as fast as in the U.S., he said.
The forecasts underscore optimism the U.S. economy is picking up, bolstered by a World Bank report last week that said gross domestic product will expand 2.8 percent this year. The pace of expansion will be 1.4 percent for Japan percent and 1.1 percent in Europe, according to the bank. The yen will fall 4.9 percent versus the dollar and the euro will drop 5.5 percent by Dec. 31, based on a Bloomberg survey of economists.
The Federal Reserve cut the debt purchases it uses to support growth and pump money into the U.S. economy to $75 billion a month from $85 billion starting in January.
By contrast, more than half of the economists surveyed by Bloomberg Jan. 10-15 expect the Bank of Japan to expand its unprecedented bond-buying program in the first six months of this year. The European Central Bank may reduce interest rates or revive its loans to banks known as long term refinancing operations, Takigawa said.
“The eurozone recovery is so weak,” he said. “The ECB will take an accommodative stance at least for the next two years.
The U.S. current-account deficit narrowed to $94.8 billion in the third quarter of last year to from a record $214.5 billion in 2006.
Resona Bank holds more dollars than the percentage in the index it uses to gauge performance, Takigawa said. He favors European bonds over Treasuries, he said.