U.S. dollar: When will bulls turn to bears?

The IMF says it should be cheaper. Hedge funds think it has room to run. So what gives with the dollar?

Since the trade war between the world’s two largest economies erupted in March last year, the dollar has gained more than 3 percent against a basket of currencies.

The dollar’s strength,

however, does not sit well with President Donald Trump, who has advocated for a weaker currency to make U.S. exports more competitive. On Monday, the U.S. Treasury labeled China a currency manipulator for allowing the yuan to weaken beyond a key level.

Trump feels that U.S. trading partners, the Chinese in particular, are all working frantically to keep their currencies cheap to gain an edge in trade.

His rhetoric has led to speculation that the U.S. government, through the Treasury, could intervene to weaken the dollar by using the Exchange Stabilization Fund. That is seen as unlikely. That fund has approximately $146 billion in reserves, according to Bank of America Merrill Lynch, which may not be enough to have a significant impact in a more than $5 trillion currency market.

Trump is not the only one who believes the dollar should be weaker. The International Monetary Fund says the dollar ought to be about 6-12 percent cheaper based on near-term economic fundamentals, but structural issues such as the greenback’s position as the global reserve currency make that unlikely.

​ But week after week, hedge funds keep piling up bets that the dollar’s surge has further to run as the world appears headed toward a trade-induced pause in growth if not outright recession.

So who’s right? Here are the arguments:

• Reuters.