HONG KONG: Rising US interest rates, the Sino-American trade war and political risks engulfing Europe will push the dollar higher against the euro and a number of Asian currencies, according to BNP Paribas Asset Management.
The investment management arm of France’s biggest bank is recommending investors short the euro against the greenback, given the likelihood of political risk escalating in the euro-zone -- particularly in Italy -- and tighter financial conditions in the region.
“The dollar has more room to appreciate in an environment where interest rates are going up in the U.S. and you have the risk of overheating,” BNP strategist Guillermo Felices, who is part of a multi-asset and quant team managing around 52 billion euros ($59 billion) of assets, said in a telephone interview on Thursday.
BNP Asset is also short the Taiwan dollar, Korean won, Singapore dollar and Thai baht against the greenback, on likely collateral damage in the trade war with China, according to Felices.
The Bloomberg Dollar Spot Index has risen 2 percent so far this quarter, thanks in part to the prospect of higher U.S. rates.
Felices said that BNP’s quantitative models signaled opportunities to buy during the recent stock slump -- dubbed Red October by some.
“We cut most of our risk in early September,” he said. “We bought developed-market equities in October after the correction.”
Still, U.S. shares may remain volatile and vulnerable to the trade war, he added, even though the American economy isn’t heavily exposed to exports.
“It could be the case that if trade tensions escalate, the S&P 500 takes a significant knock and that ends up hurting sentiment in the economy,” Felices said.
Within Europe, French shares are more insulated than their German counterparts, Felices said, recommending a relative value trade between the two markets. - Bloomberg
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