BLBG:UBS Predicts Dollar Gains Versus Euro as Growth Spurs ‘Regime Shift’
The dollar will climb to its strongest since July 2010 versus the euro as the U.S. reduces its dependence on oil imports and faster growth draws investors to the nation’s assets, UBS AG said.
The U.S. currency has gained 2.4 percent over the past three months against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes amid prospects an expansion in the world’s largest economy will outpace growth in the euro area and Japan. The greenback will also benefit as U.S. firms tap the nation’s shale gas, lowering its current account deficit, UBS said.
“Foreign exchange participants should maintain a bullish stance on the greenback in 2012,” Mansoor Mohi-uddin, Singapore-based head of currency strategy at UBS, wrote in a note to clients today. “The current account deficit is likely to improve as U.S. firms exploit large shale gas reserves, reducing dependence on energy imports, while the capital account should benefit as dollar-based investors slow foreign asset purchases.”
The dollar traded at $1.2791 per euro as of 6:18 a.m. in London from $1.2765 in New York yesterday, when it rose to a 16- month high of $1.2666. The U.S. currency will strengthen to $1.25 in 12 months, UBS forecasts, compared with the median prediction for it to decline to $1.30 by Dec. 31 in a Bloomberg survey of analysts. The dollar last traded at $1.25 in July 2010.
Producing natural gas from shale will support 870,000 U.S. jobs and add $118 billion to economic growth in the next four years, a report from HIS Global Insight said Dec. 6.
Investors Flows
UBS predicts a narrowing in the U.S.’s current account deficit may be accompanied by an end to a decade-long diversification away from dollar assets by the nation’s fund managers, foreign central banks and sovereign wealth funds.
“Dollar-based investors remaining in U.S. markets would be highly beneficial for the greenback,” Mohi-uddin wrote. “It would also result in a regime shift so that the currency rises rather than falls when investors seek risk, just as it did in the 1990s.”
Gross domestic product for the U.S. will increase 2.1 percent this year compared with a 0.2 percent contraction in the euro area and 1.7 percent expansion in Japan, economists polled by Bloomberg News predict.
The Standard & Poor’s 500 Index was little changed in 2011 while the Dow Jones Industrial Average rose 5.5 percent. The Stoxx Europe 600 Index dropped 11 percent and the MSCI Asia Pacific Index plunged 17 percent in 2011.
The U.S. dollar’s share of global foreign-exchange reserves climbed in the third quarter to the highest since late 2010, while holdings of euros declined to a three-year low, International Monetary Fund data showed last month. The U.S. currency’s portion rose to 61.7 percent in the period ended Sept. 30 from 60.3 percent in the prior quarter, according to the IMF.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
