First, we should note that at the beginning of the year all experts were extremely optimistic about the dollar. In fact, long dollar positions were among the most crowded deals in the market, Gundlach commented.
The dramatic depreciation of the dollar against the euro followed. We have to look at the factors that predetermined this. And that was mainly the expectations of investors for the Fed's policy.
Fed's comments on three interest rate rises in the market next year are not "bought from the market" for bonds, Gundlach commented. In fact, only 50% of market participants expect an increase in interest rates next year. And as I have not once seen, in my long-standing practice, the market has been much more predictive in history than the Fed.
Moreover, as far as possible, I expect the Fed to change its tone over time and in case of bad data, as well as its expectations for the number of interest rises in the next year. It is these expectations that make the dollar cheaper than other major currencies.
Otherwise, with regard to the recent appreciation of the dollar, it is not surprising. Indeed, in August, we witnessed its biggest daily decline in 20 years. And this, logically, puts it in a situation of "oversold", which many counter-investors have taken advantage of.
Otherwise, in general, I expect, despite the momentum of the dollar, that its depreciation in the longer term will continue, Gundlach predicted.
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