With the U.S. dollar receiving a heaping helping of positive expectations for price increases in the face of Fed rate hikes, among the worst performing currencies in 2016 is the U.S. dollar, a 2016 Morgan Stanley Cross-Asset Survey showed. This outwardly surprising selection for the U.S. dollar to falter comes as prognosticators have predicted numerous Fed rate hikes in the middle of an odd U.S. presidential election season in part driving the U.S. dollar positive trade thesis. But all is not well in the dollar bull camp, as a one-time whisper questioning the bull logic appears to be taking hold among institutional investors to a certain degree.
Institutional investors see dollar among the worst performing trades
When asked “Which of these do you think will be the worst-performing currency in 2016, including carry?”, the U.S. dollar was the fifth most popular choice. In a close fourth place was the much discussed pair in a relative value trade, the Euro. The Euro is widely discussed as a currency that will benefit from continued rounds of quantitative easing vaporizing regional interest rates and making its currency weaker. What institutional investors in this survey are saying is that the long dollar/short euro trade is a thing of the past. What an amateur quant might say is that the dollar trade might be due for some mean reversion, as inefficient markets might have overshot fair value while a fundamentalist such as Tom Lee of Fundstrat Global Advisors, making the early call on the U.S. dollar at the start of December 2015, says the demise of the long dollar trade is due to correlations and baked into the cake from a statistical standpoint.
Just looking at the statistical results of the end percentages resulting from this question, with the U.S. dollar at only 10 percent, however, it is apparent that a significant majority of institutional investors are not all on board the demise of one of the most crowded currency trades at the moment. When asked about the range for U.S. stock market volatility in 2016, the respondents were decisive in their answer.
