LindenGrove, Three Rock Pile In to Dollar Rally
LindenGrove Capital and Three Rock Capital Management see U.S. President-elect Donald Trump’s proposals as a can’t-miss boon for the U.S. dollar.
London-based LindenGrove Capital is long the U.S. dollar versus the Japanese yen, Chinese yuan, Korean won and Taiwan dollar. Dublin-based Three Rock has turned bullish on the dollar versus the yen and euro.
The greenback has been buoyed since the Nov. 8 vote by speculation the Republican’s proposals to increase spending and cut taxes will spur growth and inflation, nudging the central bank toward raising interest rates.
The euro could reach parity with the dollar in 2017, according to Conor O’Mara, chief investment officer at Three Rock. The euro/dollar has traded between 1.05 and 1.15 since March 2015, with “a test of the lower side of this range appearing likely,” O’Mara said in a Nov. 14 commentary sent to investors. It’s a similar story for the yen, which O’Mara forecasts will weaken to between 112 and 115 against the greenback.
“In Japan, the central bank has committed to keep 10-year yields ‘around 0 percent’,” he said. “The yen is beginning to weaken as a consequence and I expect this to continue.”
“On the one hand, you have fiscal stimulus which will push growth and inflation higher, which will make the [Federal Reserve] more restrictive,” Borut Miklavcic, chief investment officer of LindenGrove Capital, said in a Nov. 16 interview. “Then of course, there’s the protectionism put forward by Trump. We expect that will be watered down. But that will work against any country that exports significantly to the U.S.”
Forecasts for stronger U.S. economic data added to the momentum triggered by Trump’s victory in the presidential election. A report Tuesday showing a 0.8 percent rise in retail sales in October followed an upwardly revised 1 percent jump the prior month, for the biggest back-to-back increase since 2014. Data Wednesday showing U.S. manufacturing increased for a second month helped drive the market-implied probability of a Fed hike in December to 94 percent. Federal Reserve Chair Janet Yellen signaled Thursday the U.S. central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher.
“Before the election, I thought if Trump won, it would be negative for the currency because a Trump administration had indicated they might pursue a weaker dollar policy,” O’Mara said in a telephone interview on Nov. 17. “But I don’t think they can [do that] anytime soon against the backdrop of rising interest rates.”
The $312 millionLindenGrove Capital Discretionary Global Macro Strategy is down 1.5 percent this year through October, according to an investor letter seen by Bloomberg Briefs. Three Rock Capital, which manages $75 million, returned 5.6 percent in the first 10 months of the year, a separate investor letter showed.