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Is a strengthening dollar the killer currency call for 2014?
by Danielle Levy on Dec 13, 2013 at 13:22
Multi-managers are tipping the US dollar as one way to play the prospect of rising interest rates in the US next year.
The dollar has done very little in comparison to sterling year-to-date, down 0.54% at $1 to 61p between January and 6 December, having risen in the wake of the Federal Reserve’s announcement that it intends to taper quantitative easing (QE).
However, a number of leading investors suggest the tapering of QE, a continued economic recovery in the US and a perceived rise in interest rates could spell a strengthening dollar in 2014.
David Coombs, head of fund research at Rathbones, takes this view and plans to continue to overweight the US, even if equity valuations look expensive.
‘We feel the premium is justified and sustainable. We like the US domestic earners. If rates are rising in the US it means the consumer is confident and there is a strong US recovery. We like regional banks that can benefit from greater interest rate margins,’ he explained.
Linked to this, he is positive on the dollar going into 2014 and expects the currency will rise in relation to other major currencies on the back of tapering. He also holds Treasuries and inflation-linked bonds or ‘Tips’.
‘We are very bullish on the dollar and we are long versus other currencies,’ Coombs said.
Conversely, he is underweight emerging market currencies due to the possible negative impact that tapering could have, given the sharp sell-off that followed the Fed announcement in May. Nonetheless, commodity currencies could react differently, he noted.
‘On sterling we are fairly agnostic and suspect it will weaken against the dollar but might strengthen against the euro,’ he added.
EM entry point?
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