Relentless dollar rally raises bets on interventions, investors say

NEW YORK: The US dollar is expected to extend its gains, increasing speculation that governments will stage unusual market interventions to drive up the value of the currencies on the losing end of the trade.

About 45% of 795 respondents to the latest MLIV Pulse survey expect an orchestrated attempt by major world powers to weaken the dollar, even though the United States has moved to tamp down talk of such a move.

Nearly as many said they expect Japan to step up its pricey efforts to shore up the yen by itself, without the support of others.

Two thirds of respondents see the Bloomberg dollar spot index climbing to new highs over the next month.

The dollar has surged as international investors seize on higher US interest rates or seek a haven from market turmoil, including in crisis-ridden UK and emerging markets.

The rally is exaggerating the economic difficulties of nations around the world by pushing up prices of imported food and fuel.

That’s putting further pressure on many central banks, which have been raising interest rates in an effort to tamp down the surge in consumer prices.

The unstoppable dollar is also a drag on American corporate earnings by reducing the value of money made abroad.

Almost 90% of survey respondents expect third-quarter earnings to show more impact from the dollar than a quarter before.

“The dollar’s uptrend in the near term is going to persist,” said Joseph Lewis, head of corporate hedging and forex solutions at Jefferies LLC.

“In the long term, the world will shift and some of the other currencies will bounce back. But human behaviour tells me that it feels like being in the United States is just a better place now.”

The dollar has been pulled higher by the Federal Reserve’s (Fed) most aggressive policy tightening since the early 1980s, which has pushed up US bond yields.

The Bloomberg dollar index has risen 14% this year, with the currency gaining even more against the pound and yen.

The pound collapsed to a record low in late September due to the concerns over the UK’S deep tax-cut plans.

Japan spent Us$19.7bil (Rm91.55bil) on its first intervention since 1998 to bolster the currency, but the surprise move didn’t bring long-lasting results.

Unlike the Fed, the Bank of Japan (BOJ) has been keeping interest rates low.