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Everyone is waiting for the dollar to decline: economists, investors, and options market participants

BBDXY Dollar Index chart at 1 week intervals

In the first quarter, the dollar showed good growth, but in April it dried up, and the BBDXY index closed with a decline for the last three weeks in a row. Now everyone, from economists to investors, is waiting for a further decline in the American currency.

Over the past 12 months, the dollar has depreciated against all 16 major currencies except yen, and the BBDXY index during this period fell by about 10%.

Economists surveyed by Bloomberg predict that the dollar will fall in value against 11 out of 16 major currencies in the next 12 months, that is, until March 30, 2022. The same opinion is shared by the options market participants, where over the past month the US currency put options have risen in price against similar call options. In addition, the bearish sentiment for the dollar dominates among investors surveyed by Bloomberg.

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South African rand is the only currency, which, according to forecasts of economists, will noticeably fall in price against the dollar in the coming year (by about 5%). And the experts’ main favorites are the Norwegian krone, which over the past year has risen in price against the dollar by 28% and may add another 2.8% in the period until March 30, 2022, and the Australian dollar with a similar result and forecast at + 21.5% and + 2.1%, respectively.

Currency forecasts of economists are based on macroeconomic statistics, while the dynamics of option premiums reflects market supply and demand. And they, in turn, are determined by investor sentiments.

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Currently, the “risk reversal” indicator, that is, the delta of the implied volatility of similar 1-month call and put options, reflects the increased demand for call options on euros, Australian dollar, and pound… This indicates an increase in bullish sentiment for these currencies against the dollar.

A similar situation is observed in pairs dollar / franc, dollar / moon and dollar / korean won where investors are rather reluctant to buy call options on the US currency.

Two-thirds of participants in an April 8-16 Bloomberg poll among investors expect further gains in the euro and pound against the dollar by the end of this year.

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