Dollar dominance punctured as macro themes reach their endgames
October 21 2019 09:47 PM
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Bundles of banknotes of US dollar are pictured at a currency exchange shop in Ciudad Juarez, Mexico. The dollar’s reign over the currency markets is looking the shakiest since the start of 2018.

Bloomberg/ London

The dollar’s reign over the currency markets is looking the shakiest since the start of 2018. 
The greenback’s 2% drop this month leaves it on course for the worst month since January 2018 and it’s under threat from the prospect of a Brexit resolution that would hurt haven assets, as well as the odds of more US interest-rate cuts, according to NatWest Markets.
The bank is the latest to turn dollar-bearish after Scotiabank said last week that the currency may be in for more losses.
Should the bearish views prove accurate, it would mark a pullback in what’s been one of this year’s most dominant currency themes – one that saw the dollar gain from relatively higher US interest rates and growth, as well as safety bids prompted by global risks such as Brexit. 
NatWest sees this changing, as the Federal Reserve may ease policy further and with reduced odds of Britain crashing out of the European Union without a deal.
“The dollar’s longstanding bullish outlook is faltering as several key market themes reach their endgames,” Mansoor Mohi-uddin, senior macro strategist at NatWest, wrote in a research note.
The Fed’s plan to buy T-bills to ease repo-market shortages “presents a significant headwind to the greenback over the next couple of quarters. Over that period, the Fed may have cut interest rates again in December and March.” 
It’s not the first time that banks have called an end to the dollar rally – strategists had said the currency reached its peak from the middle of last year, but it went on to rally further. The difference this time may be an apparent convergence of multiple dollar-bearish factors - from an easing of global uncertainties to the possibility that the euro will bottom out as the European Central Bank refrains from further policy easing.



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