Dollar bulls keep the faith

But forward-looking forecasts for the U.S. economy are broadly upbeat: GDP growth is projected to accelerate from 2.2 percent in the fourth quarter to 2.4 percent the first-quarter and then 3 percent in the second and third quarters, according to the Thomson Reuters’ economist forecasts.

“March’s job numbers were disappointing, but you can’t pass judgment on the health of the U.S. economy with just one month’s data,” Daiwa currency strategist Yukio Ishizuki said over the phone.

Assuming the U.S. economy grows as expected, the dollar’s rally should continue, analysts said.

NLI’s Ueno sees the dollar index re-testing the 100 level, with the dollar-yen at 124, but the euro testing parity against the dollar again, at 1.03/1.04 by year-end.

Daiwa’s Ishizuki sees the dollar index back to the 100 area, with yen at 125 and the euro at 1.1 against the dollar.

Unlikely but not impossible

While unlikely, the risk that the economic data in the coming months are so bad the Fed is compelled not to raise rates cannot be completely ruled out.

“It’s not clear yet whether Friday’s job numbers can be entirely blamed on poor weather and the West Coast port strike, or whether there are other, more fundamental weaknesses to U.S. economic growth,” said Daiwa’s Ishizuki.

In the event the Fed does not raise rates this year, he sees the dollar falling to 118 yen and to 1.15 euro. NLI’s Ueno reckons the dollar index could drop to around 90 if that happened, while the green back would slip to 115 against yen, although he expects the euro to be flirting with parity against the dollar.

Another potential risk is the effect that a stronger dollar has on the earnings of U.S. multinationals, analysts said.

“By the second quarter, the stronger dollar may be taking a large bite out of U.S. corporate earnings,” said Daiwa’s Ishizuki, “and that may provoke a backlash against the strong dollar.”

The dollar index was trading at 96.75, and the dollar was quoted at 118.94 yen and 1.0984 at mid-afternoon Asia trading time

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