1. The dollar’s early rebound at the start of this year is not expected to last

BI conducted a survey around April 9-16 and found that ~60% of 121 respondents did not expect the dollar recovery to last. However, BI did note that there has been a reduction in the proportion of market participants embracing USD bearishness compared to their February 02 survey which saw 80% of respondents favouring selling.

2. Dollar bears to accelerate into year-end

Only 50% of the 121 respondents expect the dollar trade-weighted index to move lower by the end of June, but 57% expect the DXY will be lower by the end of the year.

By the end of 2021 here is what the survey respondents are expecting for year-end:

  • The USD is expected to down against the sterling (65%).
  • The USD is expected to down against the euro (61%).
  • The USD is expected to down against the yen (57%).

However, only 52% expect a higher EURUSD by the end of June and 60% see a higher GBPUSD by the end of June.

3. Yuan bulls to win out

Over half of the respondents still see the yuan outperforming even in a higher US yield context.
In this situation the China-US 10 year spread may further narrow from 150 bps, but if that happens BI expect the yuan’s carry appeal via FX forwards to be a tailwind to the yuan as loans the Fed holds rates through 2023 and contain the short end yield.

4. Dollar positioning

USD bear positioning has gone from overweight to underweight, so that is better for bears than at the start of the year when their call was overcrowded and overstretched.

So what does this mean?

It means the majority USD bearish case remains. However, there is a real risk here that a faster US recovery is not being priced. The risk is that the vaccines basically do their job in 6-9 months and economies roar back on pent up savings. The Fed then look at raising rates next year and that will shake out the USD bears. The fact that there are less bulls than in February tells that some of that scenario is, at the very least, being considered. Not one to act on now, as it is full of ifs, buts, and maybes. However, one to note.