Dollar to Strengthen Versus All Major Peers Except Pound, Loonie

  • Futures indicate a 55% chance Fed will raise rates by April
  • Kiwi predicted to be worst performer during first quarter

The dollar will strengthen against all its Group-of-10 peers except the pound and Canadian currency in the first quarter, while New Zealand’s kiwi will be the worst performer, according to analyst forecasts.

The greenback has advanced against eight of its G-10 counterparts since the end of September as the Federal Reserve raised interest rates and futures signal 55 percent odds another increase will take place by April. The kiwi and Australian dollar have shrugged off weakness in commodities to lead gains. The pound dropped to the lowest since April this week versus the dollar amid concern a slowing U.K. economy makes it less likely the Bank of England will follow the Fed in tightening policy next year.

“What’s supporting the dollar’s outlook is the economic-growth outlook for the U.S. that’s behind monetary-policy divergence,” said Masashi Murata, a vice president at Brown Brothers Harriman & Co. in Tokyo. “The big premise for forecasting currencies next year is the dollar’s uptrend. It will be difficult for any G-10 currency to beat the dollar.”

The dollar dropped 0.3 percent to $1.0944 per euro as of 7:04 a.m. in New York on Thursday, trimming its quarterly advance to 2.1 percent. The U.S. currency weakened 0.5 percent to 120.37 yen, leaving it little changed since Sept. 30.

For the first quarter of 2016, Canada’s loonie will gain about 2 percent versus the dollar, the pound will advance 1.5 percent, while the kiwi will slide about 6 percent, according to analyst forecasts compiled by Bloomberg.

The pound dropped to $1.4806 on Dec. 22, the weakest since April 15, as BOE policy maker Martin Weale said a pause in wage growth made the need for tighter policy “less immediate.” It rose 0.3 percent on Thursday at $1.4922.

Britain’s economic growth slowed to 0.4 percent in the third quarter, from 0.5 percent in the previous three months, the Office for National Statistics said Wednesday.

Intercontinental Exchange Inc.’s U.S. Dollar Index, which tracks the currency against six major peers, has risen about 1.8 percent this quarter. It will climb 2.5 percent by March 31, the Bloomberg forecasts predict. There’s a 48 percent probability the Fed will raise its benchmark by its March meeting and a 55 percent chance by April, according to data compiled by Bloomberg based on futures.

“If U.S. data remains broadly in line with the Fed’s expectations, we suspect the U.S. dollar will be off to a positive start in 2016 as there is a plenty of scope for rates markets to price in more Fed hikes,” BNP Paribas SA analysts including Steven Saywell, global head of foreign-exchange strategy in London, wrote in a note to clients.

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