Stay Long on Dollar Despite Fed’s Dovish Stance: Analyst
Even as the Fed signaled its willingness to push ahead with more stimulus measures if necessary, a move that could reduce the appeal of hoarding U.S. dollars, one analyst believes it's still better to go long on the greenback for now, especially versus the euro.
"The dollar may still outperform at the margin, because investors have slightly more confidence in U.S. policy makers' ability to stimulate growth than that of European policymakers" Says Stuart Oakley, Head of Emerging Markets Forex Exchange Trading at RBS said on CNBC Asia’s "Cash Flow."
Oakley says long positions will continue to build on the dollar, due to demand from corporations and asset managers.
"These long dollar positions that are often reported, that's among the leveraged community," says Oakley. “It does not account for the corporate community, real money asset manager community which could shift away from European assets into long dollar positions and long dollar assets particularly the S&P which is seen as a safe haven right now."
The U.S. dollar remained resilient against other major currencies on Thursday despite another injection of monetary stimulus by the Federal Reserve which signaled it was ready to do more if necessary. The central bank expanded its "Operation Twist" by $267 billion, meaning it will sell that amount of short-term securities to buy longer-term ones to keep long-term borrowing costs down. The program, which was due to expire this month, will now run through the end of the year.
But not market watchers are convinced the dollar strength can persist.
"We are now running the largest long dollar position ever. It's hard to see in my view how we will get the sort of news that justifies those positions," said Richard Yetsenga, Head of global markets research at ANZ.
While the euro has been hit by the debt mess in Europe, Yetsenga is expecting more concrete steps from European policy makers to resolve its debt mess when they meet at the EU Summit in Brussels on June 28-29th, which would be euro positive.
"I think you will have to assume that policy makers will ultimately sit back and watch Rome burn, and that is unlikely," he said.