Hedge Fund Riding Dollar Rally Focuses on CPI Before Data Desert

After a three-week rally that erased the dollar’s 2018 losses, greenback bulls face a test Thursday in the latest read on U.S. inflation. Millennium Global Investments doesn’t expect them to be disappointed.

That’s the view of Richard Benson, head of portfolio investments at the hedge fund, which manages $20 billion. April’s consumer-price index will be pivotal for the dollar’s direction, as one of the most important economic releases until the Federal Reserve reconvenes in June, he said. For him, the key is whether the data confirm that policy makers will stick to a gradual pace of rate hikes, a scenario he sees supporting the dollar.

Benson expects the CPI numbers to match the consensus estimate for a 2.5 percent year-over-year pickup, which would be the quickest acceleration since February 2017. Such an increase would likely boost the dollar by leading investors to cover short bets, Benson said. In the futures market, speculators are close to the most bearish on the greenback in five years.

“The market is very skeptical about the dollar appreciation and even those with longs have reduced before CPI,” said London-based Benson. “Hence, an in-line number will allow trend continuation.”


The Bloomberg Dollar Spot index gained 2 percent in April, its strongest month since November 2016. It’s extended the surge into May, buoyed by rising Treasury yields.

The currency’s consensus-busting rebound has benefited Millennium, which increased exposure to the greenback in April amid a slowdown in European economic growth, in what Benson called a “tactical” move. The Millennium Global Currency strategy has nearly erased its 2018 decline, after returns surged since late April, according to data compiled by Citigroup Inc.

Best Outcome

The best outcome for dollar bulls would be a modest upside surprise to the 2.5 percent consensus estimate, “but not too much that equity markets come under pressure in a fear the Fed is behind the curve,” Benson said.

Benson said the greenback could appreciate about 2 percent into the Fed’s June meeting should that scenario play out.

Conversely, a below-consensus result could spur a 1-to-2 percent decline, weakening the dollar to about $1.20 per euro from around $1.1860 currently.

On a longer-term basis, Benson is bearish on the dollar given structural issues such as the swelling U.S. budget deficit.

But looking at the days ahead, he sees the currency gaining if Thursday’s numbers prompt money markets to factor in more Fed tightening beyond 2018.

“A slight upside surprise compounded with the ever-tightening labor market will set a reasonable foundation for the Fed to continue with the slow and gradual pace of rate hikes,” Benson said.

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