At 101, US Dollar Index to peak out in April, says Ajay Bagga; FII inflows to come back once greenback stablises, says this expert

Strength in US Dollar Index is negative for emerging markets and has led to a significant correction in the stock markets, market Expert Ajay Bagga tells Zee Business. There is a severe negative co-relation between Dollar strength and growth in emerging economies, he added.  

Since the time US Federal Reserve changed its stance (on the interest rate regime), the greenback has been strengthening. He said that he expected the strength to peak-out by April estimating the impact of rate hikes to get discounted.  

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Earlier, it was expected that February inflation would be the peak but the ongoing Russia-Ukraine war has shifted the peak to April, he further said. Dollar is expected to remain flat in May-June. The Dollar is trading at levels near to its peak, he opined.  

The dollar index rose past 101 for the first time since March 2020 on Tuesday, as the greenback set its latest 20-year high on the yen and tested a two-year peak on the euro, supported by high U.S. Treasury yields and expectations of good economic data, Reuters reported.

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The dollar index, which measures the greenback against six peers, was last at 100.99, up 0.2%, having risen as high as 101.02 in early trade. It has gained 2.6% so far this month.    

He said that the emerging market ETFs were leaving and it was not that the FIIs were exiting only India and going to Latin America as they are commodity producers. 

Once the dollar stablises, emerging markets will see investments again, Bagga said.  The reversal is expected to happen in 2-3 months. Till that time, money will leave India but not at the same rate. 

He said that there could be earning downgrades on higher commodity prices. FIIs have been selling IT stocks. The valuations are high and margins will decrease. 

On the US Federal Reserve rate hike expected in early may, Bagga said that a 50 bps is expected.  

He expected a bounce-back over the next 10 days as we approach the 4 May meeting of the US Central Bank.    

On the Reserve Bank of India’s rate hike, he said, a 25 bps is expected in the June Monetary Policy Committee (MPC) meeting.