Speculators To Abandon US Dollar in 2016 After 3 Year Rally

As traders count down the days to the new year, volume remains light with many speculators on vacation between the holidays and others begin to prepare for the 2016 fiscal year. With no major data coming out of the country, the U.S. dollar steadied at the beginning of a shortened trading week when the United States and most European markets will close on Friday for the upcoming New Year’s Day. The dollar index, which measures the greenback against six major peers, was down 0.01 percent at 97.915 in late trading. The US dollar continued to ease in Asia on Tuesday touching 97.91.

In late New York trading, the euro rose to 1.0976 dollars from 1.0966 dollars of the previous session, and the British pound decreased to 1.4884 dollars from 1.4914 dollars. The Australian dollar went down to 0.7253 dollars from 0.7270 dollars. The dollar bought 120.35 Japanese yen, higher than 120.32 yen of the previous session. The dollar moved up to 0.9878 Swiss francs from 0.9863 Swiss francs, and it moved up to 1.3896 Canadian dollars from 1.3830 Canadian dollars.

US Dollar gains are expected to be limited next year compared with the strengthening seen over the last two years after a well-expected tightening of interest rates by the US Fed this month. The dollar rallied 10 percent to 1.09 per euro this year from 1.2 per euro at the beginning of the year. This is a gain from 1.35 per euro at the beginning of 2014.

The currency will appreciate about 5 percent to 1.05 per euro by the third quarter of 2016 due to the well-expected Fed liftoff, analysts said. Money managers say they will be looking elsewhere for returns after chasing the U.S. dollar’s gains in the past three years.

The greenback has extended 2014 gains, up near-9 percent against a basket of major world currencies. Some individual currency trades, like USD/Brazil Real, have netted currency investors huge returns, a CNBC report said.

Money managers say they’ll be looking elsewhere for returns after chasing the US dollar’s gains in the past three years. UBS the world’s largest private bank, is telling clients there’s “little room for further dollar appreciation”, said Mr James Purcell, cross-asset strategist at its wealth management business in Hong Kong.

Mr Stephen Diggle, who runs a family office in Singapore called Vulpes Investment Management, said US rate increases aren’t enough “to chase a strong dollar”. Strategists also predict the US dollar’s gains will slow in coming months after the Federal Reserve committed to a gradual pace of tightening.

The currency will appreciate about 5 per cent to $1.05 per euro by the third quarter of 2016, according to a Bloomberg survey, after surging 10 per cent this year. Its advance versus the Japanese currency will be limited to less than 4 per cent to 125 yen, after gains slowed to about 0.5 per cent in 2015, from more than 10 per cent in each of the previous three years.