Politics have foiled the best-laid plans of Wall Street’s currency strategists.
Turmoil in Turkey as well as strife between Italian leaders and the European Union have forced dollar bears to throw in the towel on bets that the rest of the world’s currencies would continue to play catch-up with the greenback in 2018. A continued flight to safety propelled the Bloomberg Dollar Spot Index to a 13-month high on Monday.
The advance prompted TD Securities to close the G10 foreign exchange convergence trade recommended in its 2018 outlook after losses of more than 4 per cent. The team targeted 10-per-cent upside in going long the euro, Swedish krona, and New Zealand dollar relative to the U.S. and Swiss currencies. In early Tuesday trading, the Bloomberg Dollar Spot Index eased 0.2 per cent.
“The soft patch in global growth and the emergence of Italian political tumult curtailed this thesis even though the ECB signaled the end of QE this year,” writes Mazen Issa, TD’s senior foreign-exchange strategist.
Read more: Wall Street’s bet on global currencies is bloodied with the U.S. dollar soaring - The Globe and Mail