Investors bet on a stronger dollar

Investors expect that in September 2016, the leadership of the Federal reserve system (FRS) may take a decision on raising short-term interest rates that would make more attractive investments in dollar-denominated assets, according to The Wall Street Journal.

Investors ‘ expectations have led to a marked strengthening of the dollar, which on August 29 reached a peak in the last three weeks. While August 26 was the highest for the last two months leap WSJ Dollar Index, fixing the exchange rate of the dollar to a basket of 16 major world currencies.

“We have a period of strengthening of the dollar,” said currency strategist at BNP Paribas in North America Daniel Katzive.

According to the forecast of BNP Paribas, by the end of 2016 the dollar will rise another 1.7% (approximately €0,9 for $1), and the dollar against the yen by 6% (to ¥108 per $1).

The strengthening of the dollar may benefit Europe and Japan, for which an increase in local currency means a loss of competitiveness, notes the WSJ. At the same time, the strengthening of the dollar could hit developing countries, primarily in Brazil and Turkey, which this year has attracted from investors billions of dollars in loans. The appreciation of the U.S. currency will make servicing dollar-denominated loans more expensive, which, as the newspaper writes, could lead to a “broad and indiscriminate” sale of assets.

Another consequence of the strengthening of the American currency could be the fall in world commodity prices that also are traditionally set in dollars. Pressure from the strengthening dollar, according to the WSJ, may reduce the demand for oil and other raw materials and start a new cycle of lower prices.

The total volume of the bids of the investors on the appreciation of the dollar during the week ended August 23 rose to $7,18 billion, the newspaper said, citing data from the Commission on trade in commodity futures of the USA and Scotiabank. At the same time, it is almost half the figure recorded at the end of July, when the volume of bets on a stronger dollar approached $15 billion.

“The market is difficult to understand which path the fed. We are certain that dollar will be good, but it is unlikely that the upgrade will be really big”, says canadian portfolio Manager AGF Investments Tom Nakamura.

In the course of trading Tuesday on the Moscow stock exchange rate of the dollar against the ruble hovering around 65 rubles. the dollar against the Euro on Tuesday morning rose to €0,896 for $1.