Thursday, September 28, 2023
HomemarketsContrarian call: US dollar to weaken further in 2014

Contrarian call: US dollar to weaken further in 2014

The U.S. dollar is expected to weaken further next year as the global economic recovery takes hold and the currency loses its safe haven premium, according to analysts at Wells Capital Management.

The greenback has weakened since the summer of 2013 after investors got nervous when the U.S. Federal Reserve initially mentioned the tapering of its unprecedented asset purchasing program and the government shutdown in October created uncertainty.

US-dollars being counted at the Korea Exchange bank.Chung Sung-Jun | Getty Images

But analysts' consensus is that the dollar will see a reversal of fortunes in 2014, gaining strength this year.

However, analysts at Wells Capital Management, expect the dollar to weaken as the global economic recovery takes hold.

"U.S. real GDP growth will likely rise above 3 percent this year and in isolation this would strengthen the U.S. dollar," Jim Paulsen, chief investment strategist and economist, wrote in a note.

"However, most other economies are also experiencing acceleration in their recoveries. And, in most cases, improvements in foreign growth rates are more dramatic and by comparison to the U.S., should lead to a weaker dollar."

(Read more: These currencies will fare worst vs the dollar in 2014)

Paulsen also argues that the Fed's quantitative easing program has not bloated the U.S. money supply and therefore there is no reason to believe that tapering will slow the money supply.

"And, if the relative growth of the U.S. money supply does not change much vis-à-vis its trading partners, why should ending QE have much impact on exchange rates?," he wrote.


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