May 22, 2018 / 6:35 PM / 6 months ago

Q&A-U.S. dollar at risk for weakness - Rafiki Capital's Englander

    By Michael Connor
    NEW YORK, May 22 (Reuters) - The buoyant U.S. dollar is not
as robust as it should be and looks vulnerable to a sharp drop
in value against other major currencies, veteran currency
strategist Steven Englander said on Tuesday during an interview
in the Reuters Global Markets Forum.
    Englander, an economist at Rafiki Capital Investment
Management in New York, also said the US Federal Reserve would
like to see the U.S. corporations that are announcing massive
share buybacks switch their focus to capital investment.
Buybacks are now running at record highs, topping $6 billion
each quarter.
    
The following are edited excerpts:
    
Question: The dollar is riding up since mid-April and testing
highs in foreign exchange markets. What are your expectations
for the U.S. dollar?
    
Answer: On the dollar, given the stimulus and the positioning
and the bad news on Europe, it is a bad sign that it has
responded so little. Everything's going right for the dollar,
and JPY (the Japanese yen) is barely at 110, EUR (Euro) $1.18.
If European growth picks up, and if U.S. data moderates, it will
probably fall quickly.
    
Q: Won't the large positive differences between high U.S. rates
and others encourage demand for the dollar?
    
A: It looks like real rate differentials matter more than
normal, and those differentials are not widening as much. But
more broadly, sluggish response to rates suggests that a lot is
priced in already; there is a "show me" attitude among many
investors.
    
Q: Some of the demand for U.S. dollars in recent months comes
from U.S. corporations bringing overseas profits back to America
under the president's tax plan, but much of that money is going
to dividend increases and share buybacks, instead of spending on
infrastructure and new factories. Is that a negative, as far as
Federal Reserve policymakers go?
    
A: The Fed would be happy to see buybacks stagnate. Buybacks
help the economy through a wealth effect, and that has not been
very powerful. They are hoping that capital investment replaces
buybacks. So far, investment is very good but not booming. I
doubt they will get involved, except to praise investment.

 (Reporting by Michael Connor; editing by Daniel Bases)
  
 
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