Tom Keene Talks to Brown Brothers Harriman's Marc Chandler

Tom talks with Marc Chandler, global head of currency strategy at Brown Brothers Harriman, about the undervalued dollar

How do you play the euro and the dollar?
My sense is in the very short term, the euro is headed higher. I think that the market is a bit euphoric about what [European Central Bank President Mario] Draghi said or didn’t say. I’ve noticed that there has been a very sharp drop in Spain’s two-year yield. So we get a little pop-up in the euro, then a selloff in September. As you get into the election season in the U.S. and the fiscal cliff, maybe a little bit more stability for the euro. I think a year from now that the dollar is going to be stronger, the euro weaker, below $1.20.
Some of the emerging-market currencies have done very well.
People are looking for alternatives. But I think the underlying theme is not so much the globalization of capital, it is quite the opposite. We are looking at financial disintegration. We Americans are keeping more of our money at home. We are seeing the Germans keeping more of their money at home. So while some emerging markets have attracted funds, in general the return of a domestic bias in the major economies is very important.
How strong is the dollar?
A lot of people are saying that the dollar is increasing in value and it is going to hurt exports. But the fact of the matter is that the dollar is still very cheap and that the other major currencies are overvalued against the dollar.

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