While it's still early in the year, Morgan Stanley's global head of FX strategy explained on Tuesday why he thinks dollar losses will accelerate in the second half of 2018.
With the US currency having fallen 3% since the start of 2018, Hans Redeker downgraded many of his previous dollar forecasts late on Monday, saying: "We are long-term dollar bears. Nothing has changed there."
Losses to intensify
He added, however, the dollar downtrend was likely to intensify as demand for dollar funding faded and its position as a haven weakened in the face of increased risk appetite.
He said: "Because the dollar is the global reserve currency and its capital markets are ample, it should trade inversely to demand for capital, which in turn is a function of risk sentiment. Demand for capital globally is rising due to strong capital spending demand, fiscal policy becoming more expansionary and private demand staying strong.
"We expect the strong growth momentum to continue. As a result, this robust demand for capital should continue, if not strengthen, leading to further dollar weakness."
Meanwhile, the US fiscal position is weakening and weighing on the dollar, Redeker warned. The US budget deficit is expected to widen to levels not seen outside of recessions boosted by government tax cuts and spending.
Redeker added that a widening budget deficit often leads to a wider current accout deficit.
"If the fiscal deficit continues to widen, either domestic savings will have to rise or the current account will have to fall further into deficit as foreign flows provide the marginal finance.
"This is taking place in an environment where global liquidity is topping out and eventually set to fall."
"Thus, the US will have to absorb more global capital funding at a time when the supply of savings is becoming more scarce.
"There would be little political incentive to encourage increased domestic savings ahead of the midterms, given the possibility that it could affect the current solid growth."
Redeker believes the euro will climb as high as $1.30 by year end, up from a previous forecast of $1.17. On Tuesday, the greenback was up 0.4% against the euro at $1.2357.
Against the Japanese yen, the dollar is seen falling to Y101. On Tuesday, the dollar was up 0.48% to 107.09.
Sterling, meanwhile was expected to reach $1.38 by year end. On Tuesday, the pound fell 0.47% to $1.3932.