Poll Reveals Foreign Currency Traders Have Gone Bearish on the Dollar

A strong dollar in recent months has created the biggest headwinds for gold. But will dollar strength continue? Most foreign currency traders recently polled by Reuters don’t think so.

Reuters surveyed more than 60 currency analysts and the consensus was that the dollar would be weaker against major currencies in a year. The exchange strategists say slowing economic growth in the US will drag the greenback down in 2019. 

FX trends this year have been all about the market making a series of upward revisions to US growth forecasts for 2018-2020, in absolute terms and relative to its main trading partners,” global head of FX strategy at Societe Generale Kit Juckes said. “The story of 2019 is likely to be a reverse of those upward forecasts.”

The Reuters article noted that the Fed is now hinting it could be near the end of its rate tightening cycle, saying this would “hurt” the dollar.

As Peter Schiff put it, Fed chair Jerome Powell blinked late last month when he hinted that interest rates are “just below” neutral. Peter has predicted the Fed will eventually reverse its rate hiking policy as the economy begins to tank. Powell’s comments may well set that stage. Peter said ultimately we will see real rate cuts and more quantitative easing as the central bank tries to reinflate the popping bubbles.

The economy goes into recession. Right? There’s no other result that’s possible. Real estate prices go down. Stock market goes down. Wealth evaporates. And what is the Federal Reserve going to do in response to recession? It is going to cut rates. So, regardless of the rate hikes the Fed does initially, they are simply the overture to the rate cuts. The rate hikes sow the seeds of future cuts. And investors should be looking beyond the mountain to the valley of rate cuts that are coming.”

The currency traders polled by Reuters brought up another factor Peter recently talked about – the flattening of short-term yield curves. The yield curve between the 2-year and 5-year Treasuries, and 3-year and 5-year Treasuries both inverted last week. This is widely viewed as a signal that the economy is slowing down and could be heading toward recession. As Peter put it:

The market is saying it thinks sometime two or three years from now, the Fed is going to be cutting rates because the economy is going to be in a recession. And so people think yields will be lower three years from now then they are today because they think the economy will be into a recession at some point in the future.”

Peter said where he thinks the markets have it wrong is that the recession will be here even sooner than they think.

Regardless, it looks like some people in the mainstream are starting to take notice of the warning signs – at least overseas. They see that the US economic growth is slowing, and they recognize the Fed won’t likely continue tightening rates if the economy begins to slide precipitously. Peter summed up it up succinctly.

If we are going into recession and if the Fed is going to go back to the QE well and take rates back to zero, the dollar is going to tank and the inflation fire that is already burning is going to heat up and it’s going to be stagflation.”

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