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One of Europe's Biggest Funds Is Betting on the Dollar

What to Expect After Dollar Erases Monday's Decline

It’s cheap and just about every investor is short the currency. That makes the dollar a screaming buy for Allianz Global Investors.

The fund, one of Europe’s biggest, is betting against the trend on conviction that a turnaround is in the cards. Buying the greenback versus a basket of currencies including the euro and the Canadian dollar is one of Allianz’s strongest trades, now that gains following the election of Donald Trump as U.S. President in 2016 have reversed.

That runs contrary to how traders are shaping up, with positioning the most bearish in four years, according to the latest CFTC data. The dollar is the worst performer among Group-of-10 currencies in the past year.

“The narrative should still be for a long dollar,” said Kacper Brzezniak, a fixed-income money manager at Allianz, which oversees 498 billion euros ($612 billion). “The dollar is a lot cheaper fundamentally than it was a year ago. Positioning is extremely short, so only quite a small move can cause a big turnaround.”

U.S. fiscal expansion and increasing interest-rate differentials are reasons to favor the dollar, while flattening yield curves elsewhere could help weaken currencies such as the euro, according to Brzezniak. Since a peak in early January 2017, the Bloomberg Dollar Spot Index, a trade-weighted measure, has lost around 12 percent.

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