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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: sciAticA errAticA who wrote (31723)4/17/2003 8:32:06 AM
From: sciAticA errAticA  Read Replies (1) of 74559
 
Fund managers grow bearish on the dollar

By Jennifer Hughes in London
Published: April 16 2003 10:34 | Last Updated: April 16 2003 10:34

The extent of dollar bearishness in the market was highlighted on Tuesday by Merrill Lynch's monthly fund manager survey.

Of the managers surveyed, a net 36 per cent said the dollar was overvalued, up significantly from March's 22 per cent. Similarly, the net percentage of managers saying the euro was undervalued rose to 19 per cent from just 1 per cent in March.

Merrill said the shift in dollar sentiment was due in a large part to renewed perceptions of the risk posed by the "twin deficits" (fiscal and current account) in the US. Currency strategists agreed.

"The US economy should improve in the coming months, but that doesn't necessarily mean a stronger dollar," said Mitul Kotecha, global head of foreign exchange strategy at Credit Agricole Indosuez.

"The market is cognisant of the fact that there is still a wide external deficit to fund and a recovery would, in fact, mean the current account deficit could widen even further."

The fiscal deficit also poses a threat, with potentially higher bond issuance. The US bond market has been key in attracting the flows the US needs to balance the current account deficit.

By contrast, the eurozone runs a small current account surplus and eurozone bonds, whose issuance is somewhat limited by the growth and stability pact, yield considerably more than their US counterparts.

news.ft.com
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