The dollar’s awe-inspiring ascent since Donald Trump’s surprise win in the US elections may soon come to an end because the greenback is starting to look overvalued compared to its battered peers, forecasts Mario Camara, the head of the Danish investment firm Saxo Bank in Dubai.
"I think the US dollar is overvalued and there could be a correction but the question is when," Mr Camara told The National at the weekend.
The Bloomberg Dollar Index, a measure of the US dollar against a basket of 10 global currencies, has gained to 4.9 per cent since November 8, when Mr Trump became the US president-elect, and the measure is hovering around its record high since the index began tracking data in 2005.
The reasons behind the rise are many but chief among them are expectations of fiscal stimulus by the incoming Trump administration in the form of tax cuts, loosening of regulations and infrastructure spending.
Many investors have also been buying the dollar as a safety measure amid the uncertainty about which direction Mr Trump will ultimately take. They are also loading up on the currency, expecting that the US Federal Reserve will raise rates in December.
“People are getting out of any asset that they don’t think will conserve its value,” Mr Camara said. “Markets hate uncertainty and the safe asset is the dollar.”
Of the main currencies that trade against the dollar, Mr Camara said he favours the Japanese yen. The euro, the most traded currency against the dollar, could still experience a lot of volatility before the leadership election in France where, if the right-wing populist Marine Le Pen wins next year, a further drop in the euro-zone’s currency may take place. Next month, Italians vote in a referendum to decide whether the prime minister, Matteo Renzi, can undertake much-needed economic reform, a poll that is considered to be a vote of confidence in the current government. The euro has fallen by 4.1 per cent against the dollar since Mr Trump’s victory.
“The euro is under a lot of pressure because we have an Italian referendum and a French presidential election coming,” Mr Camara said.
“If LePen is strong and wins, the euro is going to suffer a beating. Same thing in Italy if the referendum goes against the government, the euro is going to suffer a beating. So we see a lot of pressure right now on the euro from their own internal politics.”
And while there has been a sell-off that has shaved more than 25 per cent off the British pound’s value in the wake of Brexit, it looks overdone, according to the banker.
Still, it is too early for long-term investors to jump in as there is not enough clarity yet as to what the United Kingdom’s relationship will be with the EU if it leaves, he said.
On the other hand, Mr Camara sees an immediate opportunity for investors to load up on the shares of listed companies in the UK as valuations look cheap after the drop in the value of the pound. “What I would advise now is buying British equities,” he said.
mkassem@thenational.ae
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