Dollar Tempts Buyers as U.S. Economic Data Improve After Losses

Updated on
  • Bank of America survey says fund managers see it undervalued
  • U.S. growth outlook makes the greenback a buy, TD Bank says

The dollar is looking cheap enough to tempt buyers after three months of losses, according to Bank of America Corp. and Toronto-Dominion Bank.

A net 12 percent of investors find the greenback undervalued, the most in 10 months, according to a Bank of America survey this month of fund managers overseeing $619 billion. The U.S. currency is ranked the strongest buy in the Group of 10 nations as improving economic prospects boost the potential for the Federal Reserve to raise interest rates again, according to Toronto-Dominion, Canada’s second-largest lender.

“A relatively upbeat growth outlook, growth revisions and the improvement in the current account deficit helped to push the U.S. dollar into the top slot,” Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion, wrote in a note. “The market has recently reached ‘peak pessimism’ in the greenback.”

After three months of losses through April, the Bloomberg Dollar Spot Index has risen for the past two weeks, trimming its loss to 3.7 percent this year. Signs of stronger economic performance add to evidence that may convince the central bank to tighten policy. The upswing in the greenback comes as inflation, retail sales and consumer confidence data signal the world’s largest economy is escaping from a soft patch. 

“Investors are starting to pare back some of the negativity on the dollar," said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. "The dollar’s got some room to move higher.”

The greenback was unchanged at $1.1313 per euro at 8:17 a.m. in Tokyo from Tuesday’s close in New York and fetched 109.12 yen from 109.14. The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, was little changed.

Hedge funds reduced bets for the U.S. currency to weaken versus eight other currencies last week, according to the Commodity Futures Trading Commission. So-called net short positions almost halved to 37,321 in the week ended May 10.

Investors will be scanning the Wednesday release of minutes from the Fed’s last meeting to gauge the potential for future interest-rate increases.

“The market wants to see more evidence of sustainable momentum in the U.S. economy,” said Bipan Rai, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in Toronto.