A Lonely Tale of Two Dollar Bulls Vindicated by Its Latest Surge

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(Bloomberg) -- Stefanie Holtze-Jen and David Woo had a lonely stretch, staying bullish on the dollar while most of Wall Street went the other way. Their contrarian call for further gains is finally getting its moment in the sun.

Holtze-Jen, chief currency strategist at asset manager DWS, and Woo, Bank of America Corp.’s head of global rates and foreign-exchange strategy, can claim vindication after the greenback’s three-week surge wiped out its 2018 decline. For both strategists, the rebound isn’t over.

Yet they’re still in the minority -- bearish bets on the currency remain one of the most crowded trades in financial markets, with many investors still betting the gains are temporary. A reversal of that positioning will drive the dollar even higher, in Woo’s view. On Tuesday, the greenback rose before President Donald Trump’s scheduled announcement about whether the U.S. will leave the Iran nuclear accord.

“It feels very lonely, but it feels very good if you have good reasons to be contrarian,” Holtze-Jen, whose firm is majority-owned by Deutsche Bank AG, said in an interview. She was outnumbered last week as the sole dollar bull speaking on a stage with seven men at a New York conference.

DWS sees the dollar rallying to $1.15 per euro by March 2019, from about $1.1860 now, as the U.S. economy outpaces its peers. Most forecasters are still bearish on the dollar, expecting it to weaken to $1.26 per euro by the end of this year, according to the median estimate in a Bloomberg survey.

February Turn

The greenback touched its 2018 low in February, after slumping in 2017 as the Trump administration’s economic-stimulus promises sputtered. Speculation that other central banks would catch up to the Federal Reserve in withdrawing stimulus also played a part in last year’s losses.

The rebound has convinced some forecasters to change their tune. HSBC Holdings Plc turned bullish last month, arguing the Fed would still tighten more quickly than its counterparts.

Holtze-Jen has been defending the long-dollar argument for months.

Soon after taking on her current role at DWS in Frankfurt in February, she presented a 12-minute takedown of the bearish consensus in front of the company’s chief investment officer and dozens of colleagues worldwide. She convinced them to keep a bullish house view, even though it looked “nonsensical” after the currency had slumped 12 percent since the start of 2017.

While that stance has paid off, it’s still “a very hard sell,” Holtze-Jen said.

Shopping Survey

Woo found support for his view, which he’s held since at least December, in some of Manhattan’s shopping meccas -- Bloomingdale’s, Macy’s and Lord & Taylor.

“I was so desperate about my dollar call, I had to go out there and do some door-to-door research,” he said. His informal survey of vendors at the department stores convinced him that the economy was stronger than indicators suggested at the time.

Woo sees the U.S. currency rallying to $1.05 per euro at the end of this quarter, buoyed by strong growth, rising rates and tax cuts. That contrasts with an outlook of slowing momentum in Europe and emerging markets.

While investors may be coming around to the bullish dollar view, many are reluctant to buy after last year’s selloff.

“There’s no question, people are starting to think about this,” Woo said. “I don’t think anybody’s pulled the trigger. Everybody views it as consolidation and therefore they don’t want to act until there’s a clear break in trend.”

©2018 Bloomberg L.P.

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