Pimco sees limit to Fed trade amid dollar rally
sydney — Pacific Investment Management Co (Pimco) will take on less currency risk, predicting a limit to how far policy divergence can drive the dollar even as the greenback heads for its best weekly advance this year.
The Bloomberg Dollar Spot Index has climbed 1.2 per cent this week as a chorus of Federal Reserve policy makers emphasised the central bank may raise interest rates as soon as April. The dollar should remain ‘broadly stable’ versus the euro and yen, easing pressure on the People’s Bank of China as that translates into relative stability for the yuan against a basket of currencies, according to Pimco, which had $1.43 trillion of assets under management as of December 31.
“We expect to have less currency risk in our portfolios, reflecting the repricing of the US dollar over the past two years, and the limits to global policy divergence,” Joachim Fels, managing director and global economic adviser, and Andrew Balls, chief investment officer for global fixed income at Pimco, wrote in a report on Wednesday. “We expect a gradual depreciation of the Chinese currency and the broader Asia currency basket.”
The Bloomberg Dollar Spot In- dex, which tracks the greenback versus 10 major currencies, advanced 0.2 per cent to 1,200.79 at 10:52am in Tokyo, headed for its fifth day of gains and the longest winning streak in more than two months. It has climbed the most this week since the period ended November 6.
The dollar gained 0.4 per cent to 112.81 yen and 0.1 per cent to $1.1169 per euro. Against the Australian dollar it strengthened 0.4 per cent to 75.05 US cents. Crude oil slumped 4 percent Wednesday, the most since Feb. 11.
Federal Reserve Bank of St Louis President James Bullard said on Wednesday policy makers should consider raising interest rates at their next meeting amid a broadly unchanged economic outlook and prospects of inflation and unemployment exceeding targets. He votes on policy this year. San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart made similar comments about the April gathering earlier this week.
The US central bank will probably raise interest rates once or twice this year, according to the Pimco report. The Fed kept interest rates unchanged last week and halved projections for how many times it would increase in 2016, from four times projected in December, after volatility in financial markets and weakening global growth clouded the U.S. economic outlook. —
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