The dollar may reverse its gains as the market realizes that the U.S. Federal Reserve is set to continue with its asset-purchase plan through next year, according BNP Paribas SA.
The U.S. central bank is purchasing $85 billion of Treasury and mortgage debt each month under the so-called quantitative-easing plan designed to fuel growth. The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, has climbed about 3.8 percent this year, after declining 0.5 percent in 2012.
“The rise we have seen in the dollar is premature,” Michael Sneyd, a foreign-exchange strategist at BNP Paribas, said at the Bloomberg FX Debate in London. “There’s scope for the dollar-bullish trends to unwind as investors take on board the view that the Fed is going to be doing QE for some time.”
The Dollar Index rose 0.3 percent to 82.794 at 1:35 p.m. London time. It reached 82.924 on March 8, the highest level since August.
Based on Bloomberg Correlation-Weighted Indexes, the dollar climbed 3.1 percent this year, making it the second-best performer after Sweden’s krona among 10 developed-market currencies.
“We think the Fed is going to be continuing with QE all the way out until the end of 2014,” Sneyd said. “We think that this isn’t reflected in the currency and is going to cause the dollar to decline over the next couple of quarters.”
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