Pioneer Abandons Bullish Dollar Bets on Yellen's Rates Caution

  • Greenback slides 1.6% for biggest weekly loss since February
  • Fed chair's comments erode monetary policy-divergence trade

Paresh Upadhyaya has dumped the dollar, for now.

The director of currency strategy at Pioneer Investments is no longer betting on greenback strength, for at least the next three months. That’s because Federal Reserve Chair Janet Yellen said March 29 the central bank will “proceed cautiously” due to heightened risks in the global economy, helping the dollar to cap its biggest quarterly loss in more than five years.

"I’ve been this dollar bull now for about two-plus years and I officially threw in the towel after the Yellen speech," Upadhyaya, whose company oversees about $236 billion, said by phone from Boston Friday. "I essentially closed my long-dollar positions across the board," he said, referring to bets that the currency will rise.

A gauge of the greenback tumbled 3.9 percent in March, the most in more than five years, after the Fed pared projections for rate hikes at its latest meeting. The dollar decline extends a two-month slump on speculation that the U.S. central bank will refrain from tightening policy while its counterparts add stimulus as the outlook for global growth cools.

The dollar fell 2 percent this week against the euro to $1.1391, its biggest loss since Feb. 5. It lost 0.8 percent to 111.69 yen.

Upadhyaya sees the greenback weakening to a range of $1.15 to $1.20 per euro in the next six to 12 weeks.

Hedge funds and money managers cut net bullish positions on the dollar to the lowest level since 2014, according to data from the Commodity Futures Trading Commission. Bets that the dollar would rise outnumbered bearish positions by 66,441 contracts for the week ended March 29, down from 87,902 a week earlier.

Fed Watch

The Fed chair said that it was appropriate for policy makers to proceed cautiously in adjusting rates after raising them in December. “This caution is especially warranted because, with the federal funds rate so low, the Federal Open Market Committee’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric,” she said.

Yellen’s comments “are a big deal for the dollar,” said James Ong, an Atlanta-based senior macro strategist at Invesco Ltd.’s fixed-income group, which manages about $234 billion. “It suggests that the dollar is going to be at the very best flat over the next several months, and very possibly depreciate versus some of the currencies that it’s had its biggest moves against.”

The greenback declined versus the euro and yen Friday even after Labor Department data showed U.S. employers added more workers than projected last month and wages strengthened.

Traders put the chances of the Fed raising rates at its June meeting at 24 percent Friday, down from 38 percent a week earlier, according to data compiled by Bloomberg. The calculation assumes the effective fed funds rate will average 0.625 percent after the central bank’s next increase.

"We’ve made a big turn in the dollar" that won’t be reversed until there are more firm signals that the Fed will raise rates, Upadhyaya said. "Yellen’s speech was a bit of a game-changer."

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