“In this environment, we believe that relative growth differentials will be key currency drivers, and these are dollar-supportive, given that the U.S. private sector has delevered more than the rest of developed markets,” Morgan Stanley strategists led by Hans Redeker in London wrote in a Dec. 2 report.
At the same time, a persistent deficit in the current account, which is the broadest measure of trade because it includes investment, hurts demand for the dollar, according to Stolper. The shortfall was $98.9 billion in the second quarter. The euro area recorded a current-account surplus in September for the eighth consecutive month.
“A growth story convincing enough to see international investors commit more capital to the U.S.” is necessary for a breakthrough in the dollar, Stolper said. “So far, we have seen mainly capital outflows from the U.S.”