The U.S. dollar index has fallen by around 9 percent since the start of the year but that could be about to change, according to strategists at Wells Fargo, who suggest the stocks and sectors which could be positively affected amid the move higher.
Disappointing economic data, political uncertainty and positive developments abroad have sent the U.S. dollar lower despite two rate hikes by the Federal Reserve. "We review the recent selling as overdone and expect a stronger U.S. dollar from current levels by year-end 2017, a reversal of the current trend," Sameer Samana, global quantitative strategist at Wells Fargo, said in a note on Monday.
The update in the forecast was due to three reasons: differences among global interest rates, economic growth and inflation; further political risks in the euro area; and investors becoming too negative on the greenback.
While in the U.S. the Fed is raising rates and shrinking its balance sheet, in Europe, the central bank is unlikely to deviate from negative rates soon. At the same time growth and inflation in the U.S. have recovered at a faster pace than in Europe. "While that lead has narrowed as growth and inflation in the euro area have rebounded, it still favors the U.S.," the bank said.