Dollar Bears Unite With Dalio, Gundlach Predicting Greenback Downturn

(Bloomberg) -- Two of the biggest names in finance are predicting that the U.S. dollar could face some big bumps ahead following its recent rebound.

Ray Dalio, who founded the world’s biggest hedge fund at Bridgewater Associates, said the dollar could face a “crisis” two years from now and the currency may fall as much as 30 percent. In the nearer term, Jeffrey Gundlach, chief investment officer at DoubleLine Capital, predicted a decline for the greenback by year end.

Bearish views are emerging after the Bloomberg dollar index rebounded more than 5 percent from its mid-April low. The move up has been spurred by robust U.S. growth, monetary tightening and haven flows amid an escalation of global trade tensions.

The gains caught off guard some investors who had crowded into bearish positions after last year’s slump of more than 8 percent. Positioning on the currency is now close to its most bullish since early 2017, according to data from the Commodity Futures Trading Commission.

“I don’t think we’ll have new highs in the dollar without first seeing new moves to the downside,” Gundlach said in a webcast Tuesday.

The currency’s outlook is also complicated by President Donald Trump’s apparent preference for a weaker dollar and his criticism of other countries for manipulating exchange rates. Trump’s pronouncements have sparked discussion among foreign-exchange traders about whether the U.S. administration would intervene in the market to sell dollars.

Intercontinental Exchange’s Dollar Index is forecast to decline about 7 percent in 2019 from its current level around 94.86, according to the median estimate of analysts surveyed by Bloomberg. The dollar is seen weakening to $1.25 per euro in the same period from around $1.16 at present.

Dalio’s downbeat perspective on the currency stems from a view that the Federal Reserve will need to print money to fund the expanding U.S. budget deficit because demand for Treasuries won’t meet the nation’s borrowing needs and the government won’t risk choking off growth with higher interest rates.

Excess borrowing has raised questions over the dollar’s continued status as the world’s major reserve currency, especially as other peers have emerged as potential contenders in recent years. That threat isn’t evident yet in the most recent survey by UBS Asset Management on central bank reserve allocations. While the euro and yuan have made some inroads, the greenback is still “the default currency to invest new reserves” in, according to UBS.

--With assistance from Erik Schatzker, Katia Porzecanski, John Gittelsohn, Emily Barrett and Margaret Collins.

To contact the reporters on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net;Brandon Kochkodin in New York at bkochkodin@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Jenny Paris

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