Majority of investors believe US dollar will be weak in 2011, poll shows

News - Banking

Written by Ray Clancy

Friday, 03 December 2010 10:24

Three quarters of investors believe that the US dollar is going to be weak in 2011 but opinion is divided over US market prospects, according to a new survey.

Some 74% of respondents of F&C Investment’s latest Question of the Month survey feel the US dollar will be weak over the coming year as America struggles to emerge convincingly from recession and battles with a lack of political consensus.

However, opinions on the likely direction of the US stock market were less clear cut. Respondents had four scenarios from which to choose. Some 43.5% thought that the dollar would be weak but the market would be strong, 21.7% said both the dollar and the market would be strong, 4.3% thought the dollar would be strong and the market would be weak and 30.4$ said that both the dollar and the market would be weak.

The survey gives respondents the option of leaving comments, with one (in the contrarian strong dollar/weak market camp) pointing to a lack of demand from US consumers causing a headwind to markets while dollar strength would arise on a relative basis because of euro weakness. Another forecast general market weakness but said junior gold and silver miners would provide bright spots.

‘With so many global factors influencing both the US currency and its stock market, it is perhaps unsurprising that there is no overwhelming majority view regarding the future picture. It will be interesting to see if a clearer consensus emerges as to which markets will do best over the coming year,’ said Mike Woodward, head of investment trusts at F&C Investments.

It is widely expected that the US economy will grow at a much slower pace than expected this year and next, as unemployment remains stubbornly high. Estimates from the Federal Reserve give a gloomy picture of the short term fate of the world’s largest economy. The minutes from the Fed’s November meeting estimated growth would be around half a percentage point less than expected this year and in 2011.

At the meeting, members of the Fed’s top policy setting panel cut already low growth predictions to 2.4 to 2.5% this year and 3.0 to 3.6% for 2011. Unemployment is not expected to go below 9.5% this year and 8.9% in 2011.

The minutes show that there was a fraught discussion between members of the Federal Open Market Committee over their decision to roll out a controversial $600 billion spending plan to boost the recovery. Some argued that the quantitative easing will only have a limited effect on the pace of recovery.

They also show a depth of unease not reflected in the 10-1 vote in favour. Several participants were said to have highlighted the risk that the Fed could spur inflation, a sign of the depths of unease among central bankers and some said it could also lead to a reduction in the foreign exchange value of the dollar.