A 50 subject one dollar note sheet is inspected after receiving a serial number and the U.S. Treasury and U.S. Federal Reserve seals at the U.S. Bureau of Engraving and Printing in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Dollar Seen Going Through the Roof as Repatriation Flows Kick In

(Bloomberg) -- A U.S. tax overhaul could trigger a comeback in the dollar after an 8 percent sell-off this year, according to Bank of America Corp.

The beleaguered greenback will probably rally in the first quarter as U.S. companies repatriate cash parked overseas, David Woo, the bank’s head of global rates, FX and EM fixed-income strategy and economics, said at a press briefing in New York on Tuesday.

Here’s how it breaks down: Of the $4 trillion in corporate cash that President Donald Trump says is held offshore, Woo estimates 70 percent is held in U.S. dollars. That leaves 30 percent, or $1.2 trillion, in foreign currency, and if companies convert a quarter of that amount within three months of a tax overhaul, that would mean a major boost for the currency, according to the analyst.

“Immediately after tax reform gets passed, you’re going to hear this giant sucking sound,” he said. “This money’s going to be heading home very quickly, and that’s going to be very bullish for the dollar.”

His views go against the consensus on Wall Street. He predicts the greenback will strengthen to $1.10 per euro next year from about $1.18 now, and to 122 yen from about 112.30 yen at present, with gains concentrated in the first half of the year. That compares with the median estimate of $1.17 per euro and 114 yen for the first quarter among analysts surveyed by Bloomberg.

Dollar Boost From U.S. Tax Overhaul Seen as Next Year’s Business

Currency traders are overly pessimistic about the tax legislation’s prospects after the collapse of the Republican health-care bill, Woo said. If anything, the previous failure made the political stakes even higher, he said.

“The market is much too complacent about the market impact of tax reform,” he said.

©2017 Bloomberg L.P.