Same Crisis Has Nomura and Barclays Making Opposite Dollar Calls

As the rout in global stocks and commodities altered bets on the trajectory of the currency market, two of the most influential banks adjusted their dollar forecasts -- in opposite directions.

Nomura Holdings Inc. has become less bullish on the dollar on the view that the Federal Reserve may be wary of raising interest rates this year with commodity prices tumbling and the outlook for global growth weakening. In contrast, Barclays Plc sees the same phenomenon dealing an outsize blow to Europe’s economy, undermining the euro.

“Our central case is still that the Fed can deliver a hike, although our confidence level is fairly low,” Nomura’s Jens Nordvig, the No. 1 currency strategist in Institutional Investor rankings for five years running, wrote in a research note published Aug. 21. As a result, “a test of parity does not look very likely this year.”

Practically around the corner from Nomura’s Midtown Manhattan office, Jose Wynne and his research group at Barclays ramped up their bullish call on the dollar against the euro, in a note published the same day.

 The bank, one the world’s biggest currency traders, concluded that plummeting commodity prices will lead the European Central Bank to extend its bond-buying program to stave off deflation.

Ripple Effect

“The U.S. has far more robust economic momentum,” Hamish Pepper, a foreign-exchange strategist at Barclays in London, said in an interview.

Core inflation in the euro area “has a greater disinflationary impact from China’s currency move and lower commodity prices” than in the U.S. The dollar has dropped 5 percent in the past five days, to $1.1587 per euro in Tokyo Tuesday.

It finished last week at about $1.1386. Nomura changed its estimate to $1.10 per euro by year-end and $1.06 by June, from a previous call of $1.05. Barclays now predicts $0.98 by the end of 2015 and $0.93 by mid-2016, from $1 and $0.95, respectively.

The contrasting reaction to the latest market tumult underscores that the outlook for the world economy has grown murkier since China unexpectedly weakened the yuan two weeks ago, sparking a renewed selloff in commodities.

 Investors are siding with the view that the Fed will delay raising interest rates, diminishing the appeal of holding the U.S. currency.

 Futures traders cut the probability to 24 percent that the Fed will raise interest rates at its September meeting, from 34 percent on Aug. 21. The chance of a December increase fell to 47 percent from 61 percent.

bloomberg.com