Is the dollar bull dead? Wells Fargo thinks it might be

While it might be too early to call the dollar bull market dead, the evidence suggests it is, Wells Fargo Investment Institute said in a note dated Tuesday.

It pointed to the dollar index’s decline since 2016.

“Our forecast is for continued dollar depreciation, at least for the remainder of 2018,” it said. “Heavier U.S. government borrowing, a broad-based international economic recovery, and the forthcoming end to the European Central Bank’s accommodative policy all should conspire to put downward pressure on the dollar this year.”

Wells Fargo added that if the dollar’s behavior during past cycles repeats, or rhymes, the dollar may remain weak for years beyond 2018.

What to do?

Wells Fargo said it would “strongly encourage” U.S.-dollar based investors to bring up to target weight their allocations to international developed- and emerging-market equities as among the simplest and most effective ways to insulate portfolios from a falling greenback.

But the analyst was less enthused about traditional dollar-weakness hedge gold, noting the yellow metal has been less consistent than international emerging and developed market stocks when it comes to outperforming U.S. stocks.

“In addition, commodities are struggling with their own bear super-cycle, and we have an unfavorable near-term outlook on gold, and on commodities in general,” the note said.

The dollar index, which measures the greenback against a basket of currencies, was at 89.672 at 3:05 P.M. SGT, off a late February peak of around 90.613.