The U.S. dollar has been gaining strength in recent days, driven by various factors including inflation worries and currency smuggling in Iraq. The greenback is expected to continue its upward trajectory in the coming months, according to Clifton Hill, a global macro portfolio manager at Acadian Asset Management.
Hill anticipates a 5% increase in the U.S. currency against many peers, triggered by further policy tightening from the Federal Reserve due to persistent inflation. The portfolio manager predicts this scenario to unfold leading up to the Fed's October 31-November 1 meeting. Hill's predictions earlier this year regarding the Fed's policies and the dollar proved accurate.
The dollar stabilized on Tuesday after falling from a six-month high on Monday as Japanese and Chinese authorities bolstered their currencies. Hill views this decline as a minor setback, expecting markets to adjust to the Fed's path. He also predicts that 10-year Treasury yields could reach close to 5%, a level not seen since 2007, from about 4.3% currently.
Meanwhile, in Iraq, former director-general at the Central Bank of Iraq (CBI), Mahmoud Dagher, attributed the rise in the dollar to currency being smuggled to sanctioned entities. Dagher clarified that there is no dollar crisis, but rather a cash dollar leakage issue. Despite this, he maintained that the dollar remains stable in financing Iraq's imports at 1,320 IQD per dollar.
Dagher emphasized that those needing cash dollars are primarily those dealing with sanctioned entities or speculators. He stated that these traders should bear the price increase for their actions. He also stressed that CBI is not responsible for what happens to cash dollars; it is the speculators and importers dealing with sanctioned entities who should be held accountable.
On Tuesday morning at the Al-Kifah Stock Exchange, the dollar had been gradually rising against the Iraqi dinar, reaching 155,000 dinars per $100.
Hill also predicts the dollar will strengthen against most emerging markets, with the yuan, South Korean won, and Brazilian real likely to lose the most. He acknowledges that his outlook poses a risk to assets like stocks, which are susceptible to any increase in expectations for additional Fed tightening.
However, if inflation proves difficult to manage, Hill believes policy makers' "hands are completely tied." He explained, "If inflation is going up, you can't then all of a sudden cut rates." In the best-case scenario, where inflation doesn't accelerate as much as he expects, Hill anticipates the Fed will refrain from further hikes and stay on hold for most of 2024.
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