The Dollar Is About To Come Back

Worried about the soft patch in the US economy, and the attendant decline in the dollar?

Morgan Stanley's Stephen Hull would advise you not to worry:

Our core views from the remainder of 2010 remain unchanged, namely that after a period of weakness we think that the dollar is close to forming a bottom against the major currencies.
Following a string of weaker than expected economic data, expectations about the outlook for US activity has meant the dollar has been in the sweet spot for bears. Going forward, we do not expect the US economy to decouple from the major economies. We expect the dollar to recover via either US growth rebounding in the second half of 2010 or data weakening elsewhere, or both!

We forecast the US economy to grow by 3.4% and 3.3% on an annualised basis in the third and fourth quarter, higher than consensus estimates as Exhibit 1 shows. While that is our core view, it is also possible that the US is just leading a broader decline in global activity, and if that is the case then we should soon start to see weakness in other economies, which presumably might be associated with a period of risk aversion. If we are right with either of these outcomes, we would expect the dollar to recover from its recent selloff.

Image: Morgan Stanley

Read more: http://www.businessinsider.com/morgan-stanley-the-period-of-weakness-for-the-us-is-over-and-the-dollar-is-about-to-come-back-2010-8#ixzz0vmR64mBn