NEW YORK – Economic pundits, almost without exception, are predicting a stronger dollar in 2015 – an expectation that is leading investors to place some very large bets. But that market strategy could turn out to be a very large mistake.
The consensus reflects the fact that the United States is currently the only major economy where growth prospects are improving. Most recently, the US Commerce Department revised upward its estimate of GDP growth for the third quarter of last year, to 5% – the highest rate in 11 years.
Moreover, the revision was based mainly on personal consumption and business investment – the most stable and persistent components of GDP. Consumer sentiment is at its highest level since 2007. Low oil prices, which reduce the cost of gas at the pump, provide an additional boost by giving US households more cash to spend at the mall. The unemployment rate is 5.6% and falling.
All of this not only enhances confidence that strong US growth will persist; it also reinforces the belief that the US Federal Reserve will begin raising interest rates, conceivably as early as April. For investors, this makes buying dollars even more attractive.