Dollar Set to Gain 20 Percent as U.S. Grows, Archbridge SaysTaylan Bilgic
The dollar may appreciate 20 percent against “pretty much everything else” by the end of next year as the world’s biggest economy gathers steam, Archbridge Capital AG says.
“We’ll see the dollar strengthening from the final quarter of 2014 onward, as short-term U.S. interest rate increases approach,” Hakan Kocayusufpasaoglu, chief investment officer at the Zug, Switzerland-based hedge fund, said in a phone interview yesterday. Archbridge’s successful past trades include shorting the yen versus the dollar in late 2012 and betting last August that the Turkish lira would decline to about 2.20 per dollar from an average that month of 1.96, Kocayusufpasaoglu said.
U.S. gross domestic product expanded at a 2.6 percent annualized rate in the fourth quarter, data from the Commerce Department in Washington shows. Kocayusufpasaoglu expects the U.S. economy to grow at 3 percent in 2014, compared with an average forecast of 2.7 percent in a Bloomberg survey.
The dollar index, which tracks six major currencies against the greenback, has declined 4.9 percent since May 22, when the then-Federal Reserve chairman Ben S. Bernanke first signaled the U.S. would start cutting its $85 billion in monthly asset purchases. The euro, which accounts for 58 percent of the index, gained about 7 percent against the dollar in the period.
Archbridge is building a position in the dollar index “little by little” because in the short-term the euro could gain on European Central Bank policy, Kocayusufpasaoglu said.
“The ECB will probably be slow in acting against the threat of deflation,” which would create further upward pressure on its currency, he said. “Euro area exports will have serious issues when the currency hits 1.42 and above per dollar.” Once the ECB acts, the euro will fall to 1.30 per dollar by the end of 2014, he said. That implies depreciation of almost 6 percent from today.
If Turkey’s central bank cuts interest rates there would be “a decent chance” that the lira would depreciate to 2.15 per dollar or lower, Kocayusufpasaoglu said.
Archbridge’s macro fund has returned 2.5 percent this year, following 19.3 percent in 2013, according to data compiled by Bloomberg. Archbridge doesn’t disclose assets under management, Kocayusufpasaoglu said.
The Fed, which has been keeping its target rate at between zero and 0.25 percent since 2008, will start to increase it in June or September next year, Kocayusufpasaoglu said.
“The direction is clear and it’s supportive of the dollar,” he said.