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Contrarian’s case: Dollar sell-off coming on ‘huge disappointment’

Weak global demand will hit the U.S. economy and cause the dollar to sell off in the second half of the year, one analyst told CNBC, contradicting the view held by the broader market that the greenback will rally.

Saxo Bank's chief economist Steen Jakobsen expects euro/dollar to hit $1.40 as the U.S. economy underperforms.

"My model has always said there would be a weak first quarter, a very strong rebound in the second quarter and then we'll see a sell-off based on the fact that there is no demand," Jakobsen told CNBC in a TV interview.

Read MoreDollar rally in balance after bumper July

"If everyone is so bullish on the dollar why is it we are still trading $1.34 (against the euro)? We should be trading $1.20, $1.25 based on perception.

"Fourteen (2014) will be a huge disappointment and I disagree with pretty much everyone that the dollar is going to come back, I think growth will be significantly slowing down."

Dollar higher on central bank action?

The comments come after data showed the U.S. economy created 209,000 jobs in July, falling short of market expectations, as the unemployment rate climbed to 6.2 percent, sparking concerns that the recovery in the world's largest economy may not be sustainable.

But the U.S. economy has also seen some positive news with gross domestic product expanding 4 percent in the second quarter following a 2.1 percent contraction in the first quarter due to torrid weather.

The U.S. Federal Reserve is coming towards the end of tapering its asset purchase program and the market is trying to anticipate the timing of the first interest rate hike. At the same time, investors are predicting some form of quantitative easing from the European Central Bank to stimulate a struggling euro zone economy. The so-called "divergence" in monetary could see the dollar rally, according to JPMorgan, in contrast to Jakobsen's bearish views.

Read MoreDollar could be on the verge of break out, as stocks get pounded

"If the U.S. economy is indeed breaking out in the second half, the resulting monetary policy divergences should allow the USD index to trend beginning in the fourth quarter," JPMorgan said in a note.

"The next few weeks will probably bring consolidation, however, since payrolls wasn't impressive enough to sustain the rise in 2-year rates and there is little drama amongst the non-U.S. economies and central banks. The broader message is the window is closing on a short dollar/long carry trade which has been building for six months."

'Bear with dollar'

The dollar has dropped 2.6 percent against the yen this year and fallen 2.3 percent against the euro. The dollar index is slightly higher this year and saw a pick-up in the last month as confidence in the greenback returns.

Read More'Overvalued' sterling tipped for a fall

Despite the currency's weakness in the first half of the year, Bank of America Merrill Lynch urged investors to "bear with the U.S. dollar", suggesting that a weak July jobs number will force the Fed to push back the timing of an interest rate rise, giving support to long-term Treasury's and the dollar.

"Given the dollar tends to be more correlated with short-term yields this suggests the USD could struggle near term. While a bear flattening of the yield curve is typically the most bullish USD outcome, a bear steepening should be positive for some USD crosses," BofA Merrill Lynch said in a note.

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