September 26, 2017 / 11:51 PM / a year ago

BlackRock bond strategist sees potential for dollar rebound in 2017

Sept 26 (Reuters) - The dollar could be headed for a rebound this year after a decline that has left it near its lowest level in more than two years, BlackRock’s chief fixed-income strategist said on Tuesday.

Jeffrey Rosenberg said he views a resurgent dollar as a possibility in light of recent political developments in Europe putting pressure on the euro.

That has not made him bearish on emerging market debt yet, but he is closely watching the market, Rosenberg told Reuters on the sidelines of the UBS CIO Global Forum in New York.

“It’s been a really good environment for investing in emerging markets,” he said during the event. “We continue to favor them, however, we are now inching on the precipice of another theme reversal.”

The dollar’s overall weakness has been a major contributor to the outperformance of many emerging markets assets this year, analysts and fund managers say.

A fall by the euro against the dollar would strengthen the greenback, potentially reversing that trade.

Germany could face months of coalition talks following last weekend’s election, increasing uncertainty. That could also refocus investor attention on other political events in Europe, such as an independence referendum in Spain and Italian elections next year, driving the euro lower.

The single currency has faced additional pressure since European Central Bank President Mario Draghi singled out currency volatility as a source of uncertainty that required monitoring and argued that “ample” ECB accommodation was still needed.

That could mean a “convergence” in the return spreads between the greenback and emerging market currencies as well as emerging market local currency-denominated bonds, Rosenberg said. Local currency emerging market bonds have been among the top performing assets this year.

“A weak dollar tailwinds global investment, so a stronger dollar then makes us have to rethink some of those (foreign exchange) exposures,” he said.

The dollar came into September having suffered six consecutive months of declines against a basket of major trading partner currencies, and was 9.34 percent lower through August, the worst first eight months to a year for the currency since 1986. (Reporting by Dion Rabouin; Editing by Christian Plumb and Rosalba O’Brien)

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