While the stock market continues to struggle, the dollar is kicking off the week around six-week highs.
However, Brown Brothers Harriman’s Win Thin warns the greenback won’t stay there because the backdrop supports another leg lower.
He expects the U.S. Dollar Index to test Feb. 2018 lows — which would be around the “88 and change” level. The move would imply about a 5% decline from current levels.
“Since the pandemic really intensified in March, we’ve seen the dollar gain from bouts of risk-off. But really, those gains have not been long lasting,” the firm’s global head of global currency strategist told CNBC’s “Trading Nation” on Monday. ”The headwinds are building on the dollar and the U.S. economy. So, I think the recovery maybe gets pushed out into early 2021.”
His base case takes into account the resurgence in coronavirus cases here and abroad — as well as the notion lawmakers won’t pass a second stimulus package before the November election.
“The odds are falling precipitously,” he said. “We’re seeing softness in the U.S. economic data as the [current] stimulus runs out. To me, that’s all dollar negative.”
Thin, who turned bearish on the greenback in April when the Federal Reserve initiated unprecedented policy actions to help the economy, charges its ultra-dovishness prevents the firmer dollar from sticking.
Despite his weakness call, Thin does not characterize himself as a long-term bear right now. He cites cyclical issues for his weakness forecast — not structural.
“I just don’t think we’re there yet,” Thin said.
Even with the recent strength, the dollar is off more than 9% over the past six months.